We are facing the biggest global crisis since World War II in form of pandemic of Corona Virus (COVID-19). It is killing not only people but also spreading human suffering. This health crisis is also a human crisis because it is a combination of , on one hand, of a disease that represents a threat to everybody in the world and on another hand it has an economic impact that will bring a recession that probably has no comparison to any other factor causing economic recession in the recent past.
The US, Italy, Spain, China & Germany are the five most affected countries in terms of no of confirmed cases. In India, also, the number of novel corona cases continue to increase. All these countries have declared lock down which is a medical act with profound economic implications, and it is being debated across world.
Policy maker across the world are dealing it with massive uncertainty on both medical and economic fronts. They need to act fast as costs of delay could be large and have significant economic consequences.
In the midst of uncertainty, there is one thing that hold on to and a key difference between the present crisis and 2008 financial breakdown is that the present shock, though potentially devastating ,is expected to be temporary as social distancing and isolation is the biggest tool to reduce spread of this disease. Isolation of affected person between three and five months also reduces the reinfection rate, but danger of reinfection remains possible until an effective vaccine is available.
With regard to likely economic impact, first we have to distinguish between first level of measures to contain the corona virus and second round of measures having cascading effects of these lockdown exercise. The first level economic effects for the US and European countries are restricting international travel and measure taken to impose social distancing to slow the spread of the infection.
The direct impact of these health driven measures is so far largely on urban incomes in the affected service sectors, both formal and informal viz in case of Tourism & travel- formal retail sector like catering & trade and private transport which is largely informal. Second round effects are those that results from this initial reduction in incomes both through the increase in expenditure and through uncertainty and post phoning discretionary purchase.
More Importantly, uncertainty among creditors of affected enterprises, particularly micro, small & medium enterprises of the service sectors. This uncertainty has cast its shadow on financial markets because of retreat of foreign portfolio investors and re- rating of earning prospects of listed firms in various stock exchanges across world.