Xie Zhihai “COVID-19 and World Economy”

COVID-19 is steadily going to spread in worldwide scale and we cannot see any prospect of convergence.　According to the totaling by John Hopkins University, on May 4, 2020, the number of infected people shows over 3.48million and the number of deaths became 240 thousand. The world economy has been affected seriously by COVID-19. It is now clear that an impact by COVID-19 exceeds the “Oil Shock” or so-called the “Lehman Shock” (2006 financial crisis) and we call it the “Corona Shock”.

 

 

International Monetary Fund (IMF) announced on April 4 that the world economic growth rate of the year 2020 is (-) 3.0% compared with the previous year. JP Morgan Chase & Co. predicted also that world economy will suffer loss of five trillion dollars in the next two years. This figure is equal to the Japanese GDP. According to other data, many countries in the world show a serious fall in GDP in the first quarter of 2020.  For example, (-) 6.85% in China and (-) 4.8%, (-) 3.8%, (-) 3.4% in America, the Euro zone and Japan accordingly.  

 

 

Medical experts point out that it will take at least one year to converge COVID-19. It means it will take one year or more to recover economies.

 

 

Then, how does each country overcome the economic crisis caused by the corona shock?

Almost all the major countries in the world are taking financial relief measures on a big scale. But there are questions whether such relief measures are effective or not. Relief measures tend to focus on the prevention of cooling down of consumptions at this moment, but recoveries in the production fields may be more important.  At the time of the Lehman shock, financial fields have been damaged at first and then the real economy was affected. In case of corona shock, the first damage was the real economy.  It may be more difficult to recover from corona shock than that from the Lehman shock.

 

 

We are now in the back current of the globalization and protectionism in the world which came from threats of corona shock. And those phenomena may continue for the time being. We cannot expect a V-shaped recovery in economy even if COVID-19 converge.

 

 

In fact, OECD (Organization for Economic Cooperation and Development) warned that it would take a few years for the world economy to recover from the pandemic of the new coronavirus.

 

 

Then, how about the Japanese economy?　On April 27, the Bank of Japan announced that the growth rate of Japanese economy of the fiscal year 2020 would be minus 3～5%. The 2020 Tokyo Olympics have been expected as a catalyst for the Japanese economy, but they have been postponed due to the new coronavirus. According to the estimate by the specialist, this postponement will result in an economic loss of about 640 billion yen. Even if the Olympic game would be held in summer 2021, the numbers of foreign visitors to Japan would be lower than originally expected. Whether or not the inbound at that time can save the Japanese economy is still uncertain.    

 

 

However, we cannot say that everything by corona shock has negative for the world economy. There are at least four positive aspects points.

 

1）We can see illogical phenomena in the field of supply chains of the shortage of relief supplies such as masks. In global economies, it is now urgent to rebuild supply chains. As Japan has relied on China too much in the field of supply of daily necessities or goods, it becomes difficult to get when it comes to the crunch. This is what we learned this time. For example, Japan has imported 80% of masks from China. Japan, as a big country of “hay fevers”, had a big demand for masks and should have produced in Japan more.

 

2）Corona shock made us revolutionize our working styles in world wide. When many people worked from homes, they realized that there was a lot of useless meetings. Such works shall be selected hereafter. After convergence of COVID-19, works from homes or shorten the time of works should be left partly. For example, it will be unnecessary to keep the shops open. Convenience stores or family restaurants, which open 24hours should be reviewed. When many people work from homes and shorten their working time, congestions at public transportations would be eased.

 

3）Corona shock will accelerate new technical innovations. In fact, the advancement of IT will continue in various fields, such as the arrival of 5G will move ahead of schedule due to the influence of corona. For example, “On-line classes” or “video conferences” became common, and IT enterprises in America, such as “Zoom”, have made rapid progress. There were reports in America that robots are doing very good jobs in delivering foods and goods.

 

4）Finally, I think corona shock made us consider how globalization should be. When we compared the epidemics of infectious diseases in the past, COVID-19 this time has spread very fast due to globalization. On the other hand, because of globalization, countries can quickly share information, technology, experience and supplies, which is useful for corona countermeasures. Globalization will not be withdrawn due to corona shock, but rather, globalization will be further promoted through the improvement of various systems and strengthening of cooperation.

 

 

SGRA Kawaraban 632 in Japanese (Original)

 

 

Xie Zhihai / Associated Professor of Kyoai Gakuen University

 

 

Translated by Kazuo Kawamura

English checked by Sabina Koirala