What began as an outbreak in China near the end of 2019 has now become a pandemic. Today, the total number of confirmed COVID-19 cases has surpassed 400,000 and is now affecting 197 countries and territories around the world.
Data from several countries are unreliable due to political expediency, a lack of testing capability, and the clinical characteristics – particularly a long incubation period of up to 12 days during which infected individuals may be asymptomatic. However, it is clear that this pandemic is growing exponentially.
Just as this COVID-19 outbreak has devastated lives, disrupted markets, and revealed the competence (or lack thereof) of governments, it will lead to permanent shifts in economic and political power in ways that will become apparent in the long run.
To help us make sense of the global impact of COVID-19, we have compiled some thoughts from leading thinkers around the world. Here, you will see their insights on COVID-19’s global economic impacts and predictions for the global order after the pandemic.
Global Recession Now A Certainty
It is now evident that Europe and the United States will be in lockdown mode for the next one or two months, at least. Consumer spending will fall, businesses will defer capital spending and hiring and lay off workers. The EU and US will grow weak in the first quarter – the major hit to their economies only started in early to mid-March – but will severely contract in the second quarter. From July onwards, their economies may stabilize and grow again. China’s economy contracted at a drastic pace in the first quarter compared to a year ago. In the second half of the year, it should show a solid rebound and start to provide limited support to the global economy. East Asia should experience a similar recovery pattern. Southeast Asia will be behind East Asia, with Malaysia, Thailand, and Singapore likely over the worst by July.
A major downside risk is that COVID-19’s economic impact may aggravate existing financial imbalances, such as too much corporate debt that have built up in years. An abrupt, unexpected crisis like COVID-19 may tip these imbalances over into a financial crisis. Already, we are seeing the commercial paper market in the United States freeze up. To raise cash, many insurance companies are already selling down assets, reinforcing the deterioration of the market. Furthermore, existing financial fragility may blow up if business closures continue and if there is a sudden stop in tourism and travel due as a result of mass quarantine. If not handled properly, the global slowdown could be significantly worse. This is why governments are now responding on a gigantic scale. Additionally, governments have to get their focus right, targeting their efforts effectively to support the most vulnerable links in the economy.
The End of Globalization as We Know It
The COVID-19 pandemic may end globalization as we know it. Already, China’s growing economic and military power has incited a bipartisan resolve in the United States to decouple China from US-sourced intellectual and high technology property and try to force allies to follow suit. Growing political and public pressure to accomplish carbon emissions reduction targets had already called into question many businesses’ dependence on long-distance supply chains. Now, the COVID-19 pandemic is forcing governments, businesses, and societies to build and strengthen their capacity to cope with extended periods of economic self-isolation.
In this context, it seems highly unlikely that the world will return to the idea of mutually beneficial globalization. And without the incentive to protect the shared benefits from global economic integration, the architecture of global economic governance initiated in the 20th century will deteriorate quickly. It will take great self-discipline for political leaders to maintain international cooperation and not retreat into overt geopolitical competition.
A Dramatic New Stage in Global Capitalism
The fundamental shock to the world’s economic and financial system is the recognition that distribution networks and supply chains are extremely vulnerable to disruption. The COVID-19 pandemic will therefore not only have long-term economic effects, but it may lead to a more fundamental change.
Globalization enabled companies to farm out manufacturing all over the world and deliver their products to markets on a just-in-time basis, bypassing warehousing costs. Inventories that remained on the shelves for more than a few days were seen as market failures. Supplies had to be sourced and shipped on a carefully planned, global level. However, the COVID-19 pandemic has proven that pathogens does not just infect people – it can also affect distribution networks and supply chains.
Given the scale of financial market losses that the world has experienced since this pandemic began, countries are likely to come out of this pandemic decidedly hesitant about the ‘just-in-time’ model and about globally dispersed production. This could result in a new stage in global capitalism, in which supply chains are brought closer to home and filled with redundancies to protect against future distribution network and supply chain disruptions. This may cut into the near-term profits of companies, but it will make their entire distribution network and supply chain systems more resilient.
A World Less Prosperous, Open, and Free
Stephen M. Walt
The COVID-19 pandemic may strengthen the state and reinforce nationalism. Governments of all types will implement emergency measures to manage the crisis, and many will be reluctant to relinquish these new powers once the crisis is over.
The COVID-19 pandemic will also hasten the power shift and influence from West to East. Singapore and South Korea have responded best to this pandemic, and China has reacted well after its early mishaps. On the other hand, the response in America and Europe has been slow and chaotic, further ruining the aura of the ‘Western brand’.
What will not change is the fundamentally conflictive nature of world politics. Previous pandemics and plagues, including the influenza epidemic of 1918-1919, did not end great-power rivalry nor did it usher in a new era of global cooperation – neither will COVID-19. Instead, we will see a further retreat from globalization, as citizens look to their national governments to protect them and as states seek to reduce future vulnerabilities.
In other words, the COVID-19 pandemic will create a world that is less prosperous, less open, and less free. It did not have to happen like this, but the combination of insufficient planning, inept leadership, and a deadly virus has placed humanity on a new, worrisome path.