Coronavirus crisis: India, China may not face recession compared to other developing nations, says UN

The United Nations in its latest report said that the deadly coronavirus pandemic that has claimed thousands of lives across the globe is unlikely to impact the economies of India and China although it has pushed the global economy into recession.

“The world economy will go into recession this year with a predicted loss of global income in the trillions of dollars. This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India,” a report published by the United Nations Conference on Trade and Development (UNCTAD) said on Monday.

Therefore, to balance the loss due to recession, the UN trade body has called for a 2.5 trillion dollars package to be made available to developing countries so as to turn expressions of international solidarity into meaningful global actions during the times of coronavirus pandemic. The UNCTAD reported that the speed at which the economic shockwaves of the pandemic hit developing countries is dramatic and unexplainable through words. This is even worse when compared to the 2008 global financial crisis.

“The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” UNCTAD Secretary-General Mukhisa Kituyi said in the report.

The UN report shows that in the two months since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of capital outflows, growing bond spreads, currency depreciation and lost export earnings, including from falling commodity prices and declining tourist revenues. The impact due to the spread of the virus is much deeper than in 2008. The UNCTAD also claimed that it is not very optimistic about the kind of rapid rebound witnessed in many developing countries between 2009 and 2010. The domestic economic activity across the globe is now feeling the heat of the crisis.

“Portfolio outflows from main emerging economies surged to 59 billion dollars in a month between February and March, calculations show. This is more than double the outflows experienced by the same countries in the immediate aftermath of the 2008 global financial crisis (26.7 billion dollars),’’ the UN report says.

‘’The values of their currencies against the dollar have fallen between 5 per cent and 25 per cent since the beginning of this year – faster than the early months of the global financial crisis. The prices of commodities, on which many developing countries heavily depend for their foreign exchange, have also dropped precipitously since the crisis began. The overall price decline has been 37 per cent this year,’’ according to the report.

In recent days, the Group of 20 leading economies (G-20) will extend a five trillion-dollar lifeline to their economies. These massive government packages will be put together by advanced economies including China. This represents an unprecedented response to an unprecedented crisis, which will attenuate the extent of the shock physically, economically and psychologically.

The complete details of the stimulus packages are yet to be unpacked, but an initial assessment by UNCTAD estimates that they will translate to a one trillion to two trillion-dollar injection of demand into the major G-20 economies and a two-percentage point turnaround in global output.

Given deteriorating global conditions, fiscal and foreign exchange constraints are bound to tighten further over the course of the year. UNCTAD estimates a two trillion to three trillion-dollar financing gap facing developing countries over the next two years.