Following on from Part 1 – GVC, Global Virus Crisis – Current Situation, it’s apparent to us that there are a lot of encouraging signs from most governments globally.
Unlike the last series of bailouts, especially here in Australia, where the governments are attaching strings to the money, they are providing businesses.
They want businesses to not eliminate their capacity and keep their employees on board for the next 6 – 12 months.
The Australian government has actually learned from the actions taken by the US and Europe in the last crisis. They understand it is very important that the money they provide the private sector goes into safeguarding individual incomes in the form of jobs.
In Australia and the West where we’re generally well off, the banking sector is facing the unpleasant future of a credit crunch. The factor that really interests me is how the poorer nations and developing countries’ banking sectors are going to come out of this pandemic.
Debt & Banks
Many of these countries already have large foreign debt and the question that we need to ask objectively is; what can the governments of these countries do in order to help the banks, plus keep the economy alive.
The World Bank, IMF and the West need to take the appropriate actions to help affected countries with loans and not attach strings to the lent money, in order to stabilize the financial sector and economy to stave off hyperinflation.
This is extremely important because the last thing we want to see on the horizon in the next 6-12 months, due to stringent conditions placed on poor countries who take out loans, is a wave of sovereign bankruptcies which could otherwise have been avoided.
Pandemic’s real impact
As countries around the world are trying to come to terms with the pandemic and grapple with infection rates, we are witnessing the fastest levels of job losses since the great depression.
Analysts are forecasting that despite trillions of dollars being pumped into the global economy, more than 15 million jobs will be lost and cause unemployment numbers to spike to unprecedented highs.
The hardest-hit sectors from the pandemic are the Airlines, Tourism, Travel and Entertainment and the Hotel industry. The number of casual workers employed in these industries is extremely high. In the U.S. alone the pandemic could result in the loss of 14 million jobs and that the economy would contract by more than 15%. However, governments in countries like the US and Australia are doing what they can to help their constituents out of a need to ensure re-election.
What about Countries like India, Sri Lanka, Pakistan and other low-income countries? More than 1.6 billion people stand to lose their jobs and half that number have already lost jobs due to stringent lockdown measures put in place.
According to the International Labour Organisation (ILO), 81% of the global workforce live in countries with mandatory or recommended closures out of which 37.5% are employed in sectors that have experienced large disruption. ILO also made a prediction that there would be close to 25 million job losses by the end of this year globally.
Will history repeat itself?
It’s grossly inaccurate when many analysts compare the current crisis to past crises. It’s difficult to predict an outcome. The GDP is contracting at an unprecedented rate and employment globally is being buffeted by the economic shocks caused by the lockdowns. The effects of this shock are immediate, large, and fast.
The ILO also made a very critical observation. It is not enough to look at the employment numbers as these figures can be misrepresented. Of those who are still employed, ILO stated that a lot of the workers who are still working have had their working hours cut short dramatically, are on unpaid leave or temporarily stood down, technically employed.
Even though we are entering unprecedented times and no one can predict the future, I can safely say, as a society, we are not going to be floored by this pandemic in the long run. This is a once in a generation cataclysmic event our generations have to endure gracefully.
Everything with force in nature has an opposite force and reaction and with this contraction of the global GDP, there will be a time when we return to business as usual and see the GDP grow beyond previous levels.
Want to find out how we recover from this and next steps? Head to Part 3 – GVC, Global Virus Crisis – Next steps