Introduction

 The COVID-19 pandemic is not only the most serious global health crisis since the 1918 Great Influenza (Spanish flu), but is set to become one of the most economically costly pandemics in  recent history. Experience with past epidemics provides some insights into the various channels through which economic costs could arise, in the short as well as longer term. At the same time, COVID-19 differs from previous episodes in several important ways. Moreover, the globally synchronised lockdowns and slowdown of financial markets reinforce unprecedented economic sudden stop. For these reasons, the COVID-19 global recession is unique. However, past epidemics can highlight the transmission channels to the economy, especially when stringent containment policies are not in place.

 Global Impact of COVID-19

While no two epidemics will look alike, the current pandemic differs fundamentally from past episodes. The global spread of COVID-19, aided by closer international integration and the possibility of transmission through carriers without symptoms, has led to much faster transmission than past episodes. This has prompted a large-scale containment policy, put in place globally in an almost synchronised way, in turn leading to a global lockdown and sudden stop in economic activity.

 The scale and stringency of quarantines introduced since March effectively brought a large fraction of global economic activity to a standstill. Increased financial market fluctuations amplified this  initial shock, as financial markets came to grips with a historic global sudden stop. The context of high globalization and high leverage in parts of the corporate and household sectors make these short-term amplification mechanisms more potent than ever.

 Governments’ responses to the pandemic have focused primarily on the immediate health emergency and its economic effects, thus seeking to safeguard the provision of healthcare and support for individuals, households and businesses. Yet there is a huge disparity across countries and regions in terms of their capacity to mobilize the necessary fiscal and financial resources.

 In light of the uneven government capacities to respond to the COVID-19 crisis, calls for the international community to coordinate efforts and provide effective support measures, especially  for least developed countries, have increased. Given that such coordinated efforts have yet to materialize, businesses and governments in both developed and developing countries have been leading initiatives to mobilize scientific, technological and productive capacities towards critical goods. In the context of developing countries, however, such initiatives appear insufficient to contain the impacts of the pandemic and to provide the necessary supplies.

 As some economies are starting to reopen after economic lockdowns and are gradually resuming manufacturing activities, it is undisputable that workers’ health and safety guidelines are instrumental in preventing a second wave of contagion. During the early stages of the pandemic, governments’ responses differed in terms of stringency and clarity, as well as coordination capacity.

Most affected Areas

 COVID-19 broadly affect the below mentioned areas:

 Household ability and willingness to spend: When workers lose their jobs, they are likely to drain savings and increase borrowing. They may delay payments on mortgages and credit cards, and their credit ratings may decline. And they may become more fearful about the future. This means that even once the economy opens up again—they may be unable or unwilling to spend as readily as  they did before the virus appeared.

 State and local government finances: State and local governments generally have to balance their budgets each year. As income and sales tax revenues plummet, and demand for Medicaid and other programs increases, these governments will have to cut spending—mostly by cutting employment— or raise taxes. It took around 10 years for state and local employment to rebound to pre-recession levels after the Great Recession.

 Businesses—bankruptcies and lower investment: It takes a lot of work to open a new business. You have to arrange financing, find a location and suppliers, hire workers, etc. If a business declares bankruptcy and shuts down during the pandemic, that whole process will have to begin anew. That will take time and money, and make the recovery slower. In addition, even once the economy reopens, firms may be fearful that it will close again—either from a resurgence of corona or from a new virus—and may be less likely to invest in equipment or research and development. This decline in investment could make the firms less productive than they would have been, also holding down GDP.

 Lost human capital: The relationship between workers and firms is valuable. Employers and workers typically spend a lot of time in finding a good “match,” and workers then acquire firm-specific skills and knowledge. If businesses lay off their workers during the lockdowns, those workers might start looking for other jobs, or they may leave the labour market altogether. That means that all that human capital will be lost. Once firms can reopen, they may have to start the process of finding and training workers again. This will also slow the recovery.

Recovery Mechanism: Many large companies have been forced due to containment measures to develop new business models and ways to organize production to survive in the short term, and ensure long-term viability and growth. Such changes may eventually benefit from the support of science, technology and innovation (STI) policies through grants, credit and tax breaks, among other instruments. Yet as innovation features as one of the key drivers of economic growth, it is expected that STI policies should also contribute to fostering economic recovery in the medium to long run by enabling economic restructuring.

 As listed below, one can go from the most pessimistic possibility to the most optimistic possibility for the recovery from COVID-19.

 Path Ahead: As we know, the COVID-19 pandemic is a global crisis with no other modern parallel. The pandemic has impacted not only the health but financial and economic indicators across the globe. Given it is a health crisis, the most important parameter for recovery would be the number of new cases being reported. Metrics like mortality rate and daily percentage increase in active cases will also be useful for international organizations to measure the rebound status of health indicators.

 Along with the traditional, financial and economic indicators, monitoring sentiments across the social media platforms, footfall in restaurants and retail stores, vehicle traffic in urban areas can potentially be used as some of the key checkpoints.

 However, to get the clearer image of the recovery timelines, economic measures like GDP, unemployment rate, inflation rate and financial measures like equity prices, bond yields or financial market volatility will play a very crucial role.

Overall policies aimed at expanding productive capacities, enhanced economic diversification and upgraded technology while making sure of the social and environmental protection, will be the key to achieve inclusive and sustainable recovery from this pandemic.