City officials carry out disinfection works as a precaution against the coronavirus (COVID-19) at historical mosques and churches in Mardin, Turkey on Slog 13, 2020.
Halil Ibrahim Sincar | Anadolu Agency via Getty Images
Coronavirus has stopped both the medical and economic worlds in their railways.
If last week’s preliminary data flashes are anything to go by, the global economy is en route to a recession that will exceed 2008 both in speed and in magnitude.
The OECD (Organisation for Economic Co-operation and Development) estimated last week that the shutdowns could convince to “a decline in the level of output between one fifth to one quarter in many economies.”
The longer term impact of course determination be determined by the duration of the lockdowns and how businesses navigate these times.
No surprise then that we are seeing advanced economies open sizeable packages seeking to subsidize workers’ incomes, provide tax relief and loans to affected businesses. The CARES unit unveiled by the United States last week alone amounted to 9% of gross domestic product (GDP), twice as big as the stimulus open during the global financial crisis.
Citi economist Dana Peterson’s research estimates that in order for budgetary policy actions to have a significant effect in mitigating COVID-19 related shutdowns, the actions would need to be equivalent to 5% of GDP or uncountable. So far, most countries in Europe and the Asia-Pacific region are meeting that threshold.
But what about emerging markets? The imperil here is twofold: First is one of a country’s health-care ability and the second is the financial capability to deal with economic disgusts of this magnitude.
An OECD study from 2018 showed that for every 1,000 inhabitants, South Korea has 12.3 facility beds available. The equivalent number in India is 0.5 — a worryingly low ratio for a country that boasts a population of on 1.3 billion people. As India has just started to see its number of COVID-19 cases rise, Prime Minister Narendra Modi abducted the unprecedented step last week of declaring a nationwide lockdown of the world’s fifth largest economy for 21 times — a measure that Modi deemed essential to protect the nation.
The medical challenge is thus huge but so is the economic summons. Teneo Intelligence screened emerging markets on various metrics including crisis management ability as well as nummular and fiscal policy space. Three countries stood out as high risk: Nigeria, South Africa, Turkey — all fatherlands with limited financial firepower with the latter two having a relatively high hospitality exposure.
There is intelligence for optimism though: Citi’s David Lubin points out that many emerging markets today are much profuse resilient to capital flow shocks than they were in 2013 with the “median current account shortage unfunded by FDI (foreign direct investment) at 0.5% of GDP last year from 2% in 2013.”
Leverage has also fallen across emerging retails and while external debt has risen, vulnerabilities arise only for idiosyncratic cases such as highly-indebted Argentina and extraneous exchange unhedged Turkey.
The International Monetary Fund is keeping a close eye, last week calling for a doubling of its $1 trillion war case of financing capacity to help deploy more funds toward emerging market economies.
Unfortunately, its plea has give out unheeded. If things get worse for emerging markets in the next few months, that might have to change.