Corona Virus epidemic is taking lives along with pushing world economy in to recession. How many days or months it may last nobody knows. Medical professionals are fighting hard to get its cure. However in regard to recession we all are required to know its modalities and impacts.
With globalization the economic activities have now become interconnected and booms and dips effect every part of the worlds with less or higher magnitude time and again. Since 1930’s recession the world has faced five recessions. Four short terms and one that started in 2008 have extended up to 2015. Now in 2020 another recession has entered in to the world. Here question arises that by recession what we mean.
A recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, a pandemic, or the bursting of an economic bubble. In the United States, it is defined as “a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”
In April 2009, IMF had changed their Global recession definition to:
A decline in annual per ca pita real World GDP (purchasing power parity weighted), backed up by a decline or worsening for one or more of the seven other global macroeconomic indicators: Industrial production, trade, capital flows, oil consumption, unemployment rate, per capita investment, and per capita consumption.
Unemployment remains particularly high during a recession. Global recessions seem to occur over a cycle lasting between eight and 10 years. According to economists, since 1854, the U.S. has encountered 32 cycles of expansions and contractions, with an average of 17 months of contraction and 38 months of expansion. However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more, and four periods can be considered as recession:
n July 1981 – November 1982: 15 months
n July 1990 – March 1991: 8 months
n March 2001 – November 2001: 8 months
n December 2007 – June 2009: 18 months
n December 2019-Still not ended
In regard to Asian region “The Asian financial crisis” was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion.
The crisis started in Thailand (known in Thailand as the Tom Yum Goong crisis; Thai: on July 2nd, with the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar. Capital flight ensued almost immediately, beginning an international chain reaction. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt. Pakistan was not affected at that time.
Now to counter recession of 2020 all governments in the world have brought their central bank rates to almost zero, have cut down their expenditures and have diverted their main expenditures to help those who have gone unemployed.
Now coming to Pakistan one can see that in Pakistan we have gone through 10 business cycles with 5 showing recovery and 5 as fall.
The best growth average we have seen was during 2003-2005 in Musharaff period but unfortunately he incurred all gained money on personnel financing i.e. Refrigerators, TVs, Mobiles, and Cars without incurring it on development projects. That was the biggest mistake he made at that time.
Now in 2020 this is the time when we are facing another fall. For this government should come up with its plans by taking business communities in to confidence and by bringing SBP prime rate in to single digit. For unemployed persons and families additional funds should be created and distributed through Mohallah Committees. Pakistan Army and Rangers can provide help in this regard.
Fortunately on 24th March SBP has come up with the view that “Substantial new information on global and domestic developments has become available since the last MPC meeting (on 17th March 2020). Globally, the Corona virus has severely increased in reach. This has caused major disruptions to economic activity and the IMF has also significantly downgraded its global growth outlook for 2020 from 3.3 percent growth previously to below zero. These global developments have also led to a sharp fall in international trade. On the domestic front, since the last MPC, the number of COVID-19 cases has increased considerably, prompting social distancing and curtailment of activity. This is expected to lead to noticeable slowdown in domestic demand. The developments discussed imply that the outlook for growth and inflation in Pakistan is likely to be revised down further. In the wake of this new information, the MPC agreed at its emergency meeting today, to take further action. Accordingly, the MPC has decided to cut the policy rate by a further 150 basis points to 11 percent”.
In addition Government has also taken some steps on 24th March by creating funds for the corona virus affect-tees and by reducing oil prices.
Collectively we can fight and defeat corona virus epidemic and we must do this.