COVID 19 & MACROECONOMICS Dr. T.K.S. Villalan Introduction - - PowerPoint PPT Presentation

COVID – 19 & MACROECONOMICS

• Dr. T.K.S. Villalan

TOPICS FOR DISCUSSION

• Introduction
• History of Pandemics
• World and COVID – 19
• COVID – 19 in India
• Economic impacts of Pandemics before 1950
• Changes in Global Environment after 1950
• Financial Crisis Vs COVID – 19
• Macroeconomic picture of India before and after the

COVID-19 pandemic

• Impact of COVID-19 pandemic on World Economy
• Policies for resolution
• Is Keynes relevant today?
• Conclusion

INTRODUCTION

• COVID -19 is an infectious disease caused by a newly

discovered coronavirus

• Epidemiology – Wuhan – Seafood, live rabbit, snakes,

bats and other animals.

• Transmission – Human to Human – Droplets and fomites
• Symptoms - Fever, dry cough, Headache, sore throat,

Gastrointestinal symptoms, multiple organ dysfunction

• However, Govt. of Tamil Nadu announced 85 % cases

asymptomatic

WORLD HISTORY

• COMMUNICABLE

DISEASE

• Existed since hunting stage of human kind
• Earliest record Pandemic – Athens 430 B.C.
• Antonine Plague – Began with Huns – 165 A.D.
• Cyprian Plague – 250 A.D.
• Justinian Plague – Palestine – 541 A.D.
• Leprosy – Europe – 11th Century
• Bubonic Plague – Asia – 1347 A.D.
• Smallpox, Measles – Caribbean – 1492
• Pandemic around China and Hon Kong– 1855
• Pandemic around Fiji – 1875
• Russia Flu – 1889
• Spanish Flu – 1918 – 50 Million deaths worldwide
• Asian Flu – Mid 20th Century
• HIV/AIDS – 1981
• SARS and EBOLA – 21st Century

COVID – 19 AROUND THE WORLD

• On 31st December 2019, Wuhan Municipal Health

Commission, China, reported a cluster of cases

• f pneumonia in Wuhan, Hubei Province. A novel

coronavirus was eventually identified

• On March 11, 2020, after the first case of death in China
• n 17th November, 2019, and the deaths around Europe

and US, The World Health Organization announced that the COVID-19 Virus was officially a Pandemic after barrelling through 114 countries in months and infecting over one lakhs eighteen people.

COVID -19 IN INDIA

• First case was reported on 30th January 2020
• PM announced lockdown for 21 days period on 24th

March 2020 to curb the spread of the virus

• The lockdown was extended for nearly 70 days till 31st

May 2020

• As of 02nd June 2020, the spread of COVID-19 in India

was found on 1,98,706 persons

• Maharashtra, Tamil Nadu, Gujarat are leading states in

the spread of COVID – 19

MACROECONOMICS AND PANDEMICS BEFORE 1950

• Economies were highly independent
• Not integrated with other parts of the world
• Except for Spanish flu 1918, other had larger causalities

than economic issues

• Recovery and achieving the earlier capacity was easier

compared to intertwined economic systems of today

• Establishment of GATT in 1948 – started to integrate the

countries with the objective of increasing trade to achieve higher equilibrium by reducing tariff rates.

• GATT to World Trade Organization - From Globalization

to Neoliberalism lead to a new dimension of highly interconnected global economy. - Globalism

INDIA AND GLOBALISM

• Before liberalisation, Agriculture contributed larger

sum to the National Income of India

• India opened its Economy - since 1990
• Allowed its market to interact with global economic

markets

• Due to this phase of Information Technology and

Interconnectedness, Indian Economy showed a positive sign of economic growth

• Today the Service Sector Contributes around 74 per

cent to the national income of India

• Since 2004 to 2012, Indian Economic Growth was quite

significant and reached around double digit growth rate

FINANCIAL CRISIS VS COVID – 19 PANDEMIC

• 2008 financial crisis affected the world economies - the

growth of global economy started shrinking

• Some economies adjusted and maintained its growth rate

and others not

• China, US and other developed countries helped the

developing countries to overcome from the Financial Crisis after 2008

• Still the impact of 2008 financial crisis is not yet over
• Adding to the Crisis of Global Economy, the Pandemic

Covid-19 further augmented the Economic Crises

• Covid-19 started affecting largely the developed countries
• China, US and other developed countries were largely

affected even before the Covid-19 Pandemic started

• Unlike Financial Crisis, Developed Countries were passing
• n the blame between the East and West without helping

each other

• Politics dominated their objective than economic recovery

and public health

MACRO ECONOMIC PICTURE OF INDIA PRIOR TO COVID-19 PANDEMIC

• Agriculture sector shows a lesser growth rate
• Manufacturing sector in negative side
• Saving, Investment and Capital formation are on

negative side

• Unemployment rate went to historically high.
• External Sector didn’t show improved performances

during this period.

• Exchange rate of Indian currency and the value of

Indian currency is another issue

• Banking Sector crisis

MACRO ECONOMIC PICTURE OF INDIA PRIOR TO COVID-19 PANDEMIC

• False

and wrong information given by the Government of India on GDP Statistics

• Different pricing and tax system on oil in India

compared to the other countries

• Demonetization and the Introduction GST in a rash

manner

• Any government would look into fiscal measure

predominantly more and allow the Monetary sector to manage by the Reserve bank of India

• But the beginning of the day one, the present

government took in charge, their concentration was

• nly to intervene into the operations of the Reserve

bank of India and this has resulted in a deep banking crisis

GDP GROWTH AND EXPORTS

GDP GROWTH RATE EXPORTS

INFLATION – UNEMPLOYMENT IN INDIA

UNEMPLOYMENT RATE INFLATION RATE

GOVT SPENDING TO GDP – GOVT DEBT TO GDP OF INDIA

• GOVT. SPENDING TO GDP
• GOVT. DEBT TO GDP

MACRO ECONOMIC ISSUES SINCE THE COVID – 19 PANDEMIC

• Increase in Unemployment - nearly 50 percent
• Lack of Income / Pay Cut
• Return of Migrant Workers
• Inability to operate the shop/ MSMEs in full capacity
• Extending Lockdowns for Large Scale Units
• Reduction in interest rates makes savings and

investment less attractive

• Increase in domestic violence and gender oriented

issues

• Demand shortage for non-essential commodities
• Inflation on essential commodities

SOLUTION OFFERED BY MINISTRY OF FINANCE IN INDIA

• 20 lakh crore Stimulus Package was announced
• The package consisted worth 11 lakh and odd crores
• Remaining part of packages – left out for RBI
• Fiscal Stimulus and Monetary Stimulus do not have

same effect in instigating demand

• Package consist more monetary measures than fiscal

stimulus

• Centralized vision and measures have less impact on

grassroots level

• Non-disbursement of State’s share of GST acts as hurdle

for State Governments

• ADB estimates lockdown would take 2.3% of GDP

GLOBAL MACRO ECONOMIC PICTURE

2 2.5 3 3.5 4 4.5 2010 2011 2012 2013 2014 2015 2016 2017 2018 4.299 3.132 2.508 2.655 2.835 2.857 2.585 3.197 3.058

World GDP Growth Rate

57.13 60.54 60.58 60.1 59.78 58.09 56.13 58.07 59.44 54 55 56 57 58 59 60 61 2010 2011 2012 2013 2014 2015 2016 2017 2018

Trade (% of GDP)

GLOBAL MACRO ECONOMIC PICTURE

• Game changer for Global Economy
• 2020 and 2021 will be lost years for growth
• “Economist” states recovery possible only in 2022
• Lower Fiscal Revenue and higher social expenses

requires extraordinary fiscal efforts

• Public debt will increase sharply
• 25 million jobs will be eradicated stated ILO
• 30-40 percent downward pressure on global FDI

(Projected by UNCTAD)

• 1.5 billion students out of school

(Forecast by UNESCO)

US ECONOMIC ISSUES AND GLOBAL ECONOMIES

• Trade policy is getting grimmer by the present period
• The U.S.-China trade war has dominated headlines since

President Trump took office

• The US is pursuing autarkic solutions to substitute domestic

production for imports

• Demand crisis in the US Market
• Issues of Unemployment crisis in US
• Student loan debt is one of the most critical issues facing U.S.

(Around 45 million people are carrying a total of $1.49 trillion in student loan debt)

• The healthcare debate is one of the most critical for

Americans who are unsure of the future of the Affordable Care Act or what might replace it (U.S. healthcare spending totalled $3.5 trillion in 2017, or more than $10,000 per person)

• US attack on WHO sighting the connection with China
• US financial support stopped to WHO

OTHER GLOBAL MACRO ECONOMIC IMPACTS

• Allies of 70 years, Germany and US are reportedly

fighting

• ver

an American cross-border acquisition of German biotech firm, because the Trump Administration is casting it as a way to get a vaccine exclusively for US.

• In Europe, the problems of Debt, since 2008

financial crisis and economies are in danger except Germany doing better. Italy, spain and

• thers too have largest impact of COVID on their

Economies.

• This pandemic affected much the Lating American

countries.

POLICIES REQUIRED TO RESOLVE

• Mostly what we understand is the tools of

monetary policy are very limited at this crisis point.

• Aggressive fiscal measures, especially to support

small, medium enterprises and more importantly informal sector in countries like India are required

• Another issue is that without knowing how long

will this pandemic extends, we cannot predict the policies to be made to set right the economic conditions.

POLICIES REQUIRED TO RESOLVE

• Corona Virus is the basically a health crisis.
• Developing country like India except Kerala and

Tamilnadu, Health infrastructure is under- developed and Policy has to be made to develop into a model like in advanced countries.

• Crisis solving by adopting a suitable fiscal and

Monetary policies

• The policy requirement is always varying from
• ne country to another depends on their

economic conditions

RELEVANCE OF KEYNES???

• The supply disruption caused by the coronavirus

epidemic, cause a severe slump driven by weak aggregate demand

• Which policy interventions can prevent a stagnation

trap?

• Policy interventions – both monetary and fiscal – might

be needed to prevent the negative supply shock triggered by the coronavirus spread from severely affecting employment and productivity

• There is little that conventional monetary policy can do,

since the policy rate is constrained by the zero lower bound

• Luckily, fiscal policy – and in particular, policies that

sustain investment – can be of help

• In economic terms, this means that a sufficiently

aggressive policy intervention to sustain investment can rule out stagnation traps

RELEVANCE OF KEYNES???

• If the government reacts to the coronavirus
• utbreak by subsidising firms’ investment, or by

starting a public investment program. These policies make the GG curve shift upward, because they increase investment and productivity growth for given aggregate demand

• If this shift is large enough, the stagnation trap

equilibrium disappears

• A timid intervention, however, will not do the job

(think about a small upward shift of the GG curve)

• Steeply progressive income tax is “fairer” than

inflation?

• Will today’s Government make such a choice?

STATEMENTS OF ANTONIO GUTERRES, UN SECRETARY GENERAL

• “The new coronavirus disease is attacking societies at

their core, claiming lives and people’s livelihoods” pointing out that the potential longer-term effects on the global economy and individual countries are “dire”

• "Shared responsibility, global solidarity: Responding to

the socio-economic impacts of COVID-19”, describes the severity of cases, and the societal and economic disruption of the coronavirus

• “COVID-19 is the greatest test that we have faced

together since the formation of the United Nations”

• “This human crisis demands coordinated, decisive,

inclusive and innovative policy action from the world’s leading economies – and maximum financial and technical support for the poorest and most vulnerable people and countries”

CONCLUSION

• Several countries in Asia and Europe, where the

COVID-19 outbreak appears to have peaked, are gradually reopening their economies.

• Without

a vaccine

• r

effective treatment, policymakers will be balancing the benefits of resuming economic activity against the potential cost of another increase in infection rates

• They face difficult choices, in part, because the

costs of erring in either direction could be very large

CONCLUSION

• US being a super power, instead of concentrating on

Corvid 19, they started politics and blaming on china and world health organization.

• Another major democracy is India, instead of planning to

solve and take actions, government, particularly government machinery is blaming and politicising with the Tablighi Jamaat events

• UN must come out with a special Research and

Development wing exclusively in future for such a pandemic which should be funded by all the members of United Nations.

• So the richest advanced countries without showing their

political and economic enmities, must assist larger finance so that things will be worked out to solve this pandemic.

• A Co-ordinated effort globally to solve this pandemic. No

space for politics, race, religion etc., needed now.

CONCLUSION

• “Difficulties strengthen the mind, as labour does

the body.”

• “There is a silver lining to every crisis. The

advantage that all those who live through a crisis, whether it is personal like the loss of a loved one

• r impersonal like a pandemic, is newly acquired

strength.”

• Seneca,

Roman Philosopher

Thank You

• T

.K.S. Villalan