BRUSSELS/BERLIN — The COVID-19 pandemic, which is sweeping the world, has left in its wake some 900,000 infected and over 45,000 dead by Thursday, according to the lastest World Health Organization (WHO) figures, triggering fears that the world economy could be driven into recession.
The World Tourism Organization (UNWTO) published on March 27 a report predicting that the crisis will cause international tourist arrivals to fall by between 20 percent and 30 percent in 2020 from last year’s total of 1.5 billion tourist arrivals, leading to a loss of 300-450 billion U.S. dollars in international tourist receipts and hit the small and medium-sized companies that make up 80 percent of all businesses in the sector.
The United Nations Conference on Trade and Development (UNCTAD) said in a recent report that the COVID-19 pandemic may bring a 30-40 percent drop in global foreign direct investment (FDI) flows during 2020 and 2021.
The International Labour Organization published on March 18 a preliminary assessment of the outbreak’s effects, indicating that it could increase global unemployment by almost 25 million, and push millions of people into underemployment and working poverty.
The situation does not bode well for Europe where over 500,000 people have been infected and more than 33,000 died from COVID-19, especially as Germany, UK, France, Italy and Spain, the five major economies in terms of their GDP share of the world’s total in 2018, also happen to be among the hardest hit by the coronavirus on the continent.
GERMANY
The German Council of Economic Experts (GCEE), the advisory council of the German government, predicted that the country’s GDP would shrink to minus 2.8 percent in 2020 due to the coronavirus pandemic.
GCEE considered a normalization of the economic situation over the summer to be the most likely development. It also predicted that in 2021, catch-up effects and a large carry-over effect could drive GDP growth back to 3.7 percent.
The ifo Institute and the German Institute for Economic Research (DIW) both announced on March 19 that the German economy is set to experience a severe economic downturn as a result of the global coronavirus pandemic.
Lowering its economic forecast by almost three percentage points in a “highly positive” scenario, ifo is expecting the German economy to be pushed into recession and shrink by 1.5 percent in 2020.
While Germany’s GDP would still increase slightly during the first quarter of 2020, ifo believed that the crisis would take full effect in the second quarter and lead to a 4.5-percentage-point fall in GDP.
Production of goods and services would only “gradually return to a normal level” by the first half of 2021. Excluding long-term effects like company bankruptcies, ifo is expecting the overall damage of the pandemic to German economy to be at a total of around 115 billion euros (123.7 billion U.S. dollars) by 2021.
Ifo warned that the pandemic, given its magnitude, would also have “substantial effects” on the labor market. The number of people in employment would fall for the first time in 15 years, it warned.
Experts warned that the country’s automobile industry would be significantly damaged by the coronavirus crisis in 2020 and beyond. And more than 100,000 jobs or 12 percent of the current 830,000 jobs at car manufacturers and suppliers could be at risk.
FRANCE
In France, four million employees, or one in five, are currently under the partial unemployment scheme put in place by the government in response to the coronavirus crisis, Minister of Labor Muriel Penicaud announced on Thursday.
Under the scheme, employers pay their employees on temporary leave most of their salary. The state will then reimburse businesses in full for salaries up to 4.5 times the minimum wage.
The French government has enabled expedited procedures for employers to facilitate partial unemployment. Local media estimated that the mechanism to avoid dismissals might cost the French state coffer billions of euros.
Business leaders were more pessimistic about business climate in March with the monthly sentiment indicator tumbling by 10 points, the biggest decline since records began in 1980, official data released last Thursday.
In March, employment climate composite indicator has lost nine points to 96, its biggest fall since the records started in 1991, according to national statistics institute Insee, which expected that each month of confinement would cut economic growth by 12 percentage points on a quarterly basis and 3 percentage points on an annual basis.
In its updated budget bill, the government said it expects GDP to contract one percent this year, abandoning the 1.3 percent growth target.
ITALY
The Italian economy, which the Bank of Italy originally expected to grow by around 0.5 percent this year, is now expected to contract by 3 percent or more, depending on how long the Italian outbreak of the virus lasts and how severe it becomes.
The General Confederation of Italian Industry (Confindustria) said on Thursday that industrial production “in the first quarter of 2020 is expected to contract by 5.4 percent, the largest drop in the past 11 years.”
Confindustria analysts said that “the impact of COVID-19 and the measures to contain the infection have been devastating in March, when (industrial) activities decreased by 16.6 percent compared to February, rolling the production index back to the levels of 42 years ago.”
Confindustria said this was due to the “closure of about 60 percent of (Italy’s) manufacturing industries” in order to contain the pandemic.
In a separate statement on Thursday, Confindustria noted that if “the acute phase of the health emergency ends in May 2020 and production resumes gradually between the end of April and the end of June, (we) estimate that gross domestic product (GDP) in Italy will fall by 10 percent in the first two quarters compared to the end of 2019. On average for 2020, GDP will drop 6 percent.”
However, if the emergency continues beyond May, “our forecast will have to be revised downwards,” Confindustria analysts wrote, adding that national GDP will likely drop by “a further 0.75 percent” for every additional week that production is at a standstill due to the coronavirus pandemic.
SPAIN
The monthly unemployment figures published on Thursday showed that the harm the coronavirus crisis is doing to the Spanish economy. In March, of Spain’s population of 46.8 million, 303,365 people lost their jobs, with 3.55 million people now registered as unemployed.
Meanwhile, the number of people contributing to Spain’s social security system fell by 833,979, as the lockdown imposed in the country from March 14 has been affecting small businesses and self-employed workers.
The slowdown in the economy was confirmed by data published by the Madrid Public Transport System, which indicated that the use of public transport fell by 93 percent compared with the same period in 2019.
The government said it would inject 200 billion euros into the national economy in a series of measures to offset the effects of the coronavirus epidemic.
UK
Standard & Poor’s Global Ratings noted in a recent statement that “the eurozone and the UK are facing recessions” and that “we now expect gross domestic product (GDP — in the eurozone and the UK) to fall around two percent this year due to economic fallout from the coronavirus pandemic,” representing a loss of 420 billion euros in real GDP in 2020 “compared with our forecast from November 2019.”
However, the “risks are still to the downside, as the pandemic might last longer and be more widespread than we currently envisage. For example, we estimate a lockdown of four months could lower eurozone GDP by up to 10 percent this year,” S&P analysts wrote.
The British government has announced that it will provide 330 billion pounds (about 399 billion U.S. dollars) of loans to businesses to support firms to get through the difficult moments as the coronavirus outbreak escalates in the country.
Earlier, it pledged a 30-billion-pound stimulus plan to shore up the country’s economy amid the COVID-19 outbreak in its first post-Brexit budget, as well as funding grants of up to 25,000 pounds for small businesses.
The government is offering self-employed people 80 percent of wages for at least three months, up to 2,500 pounds (3,034 U.S. dollars) a month, a move to help them get through the challenging time amid the coronavirus outbreak.
“We must do whatever it takes to support the economy,” said Prime Minister Boris Johnson. (1 euro = 1.09 U.S. dollars)