Economic Perils of Gargantuan Proportions – A Preview

COVID1-19 unleashed an unprecedented economic downslide. The world hovers dangerously on the precipice of a global economic recession. It’s skating on precariously thin ice that’s melting fast. The economic downturn promises to be a long drawn one with no hopes of an upturn anywhere on the horizon. In this series, I intend to look at the hows, wheres, whats and whens of the global economic impact of COVID-19.

The numbers that we were afraid of had started to trickle down. The numbers are more frightening than what we expected, and they look like the portends of an arduous, debilitating odyssey of economic hardships that man has to undertake with no end in sight. The International Labour Organization, or I.L.O., says that out of the 7.80 billion people, there is around 3.30 billion — 330 crores — working population and that 1.60 billion workers are in the immediate danger of losing their jobs due to the pandemic. Frightening! The indications of this projection are already out.

The USA economy shrank at 4.8% pace on annualized basis in the first quarter of the current financial year — the biggest contraction since the 2008 financial crisis; the contraction numbers of the Spanish and French economies for the same period are 5.2% and 5.8% respectively. They all fear that their economies are heading for the sharpest declines in the coming months since the Second World War. Well, many, including the W.H.O., opined that the world was fighting the biggest war — if you number it, it will be the Third World War — against COVID-19.

Comparing the present economic crisis with the financial crisis of 2008 will not be appropriate. In 2008, it was a Wallstreet-Crisis hitting the real economy; there was bloodbath across the share markets, with the Dow Jones plunging below 8000, but the real economy was not hit proportionally. Conversely, the present crisis is not a financial crisis but an economic crisis arising out of the crashing of the real economies across the borders. This is the reason that the share markets are still holding on, but the indices have to come down as and when more numbers representing the perils of the economies come out.

Let’s not lose sight of the fact that lockdowns started in Europe and the U.S.A. only in March, that is, the economic activities ground to a halt only in March, but a month’s closing of shops, factories and farms was enough to offset whatever economic growth happened in January and February, even pushing the numbers into the negative territory. So imagine what the economic contraction will be in the second quarter! It will be even worse, and that was why Christine Lagarde, the chief of the European Central Bank, warned that the global economy would contract by 5 to 12% this year. Now, let’s look at a couple of equivalents in the real economy vis-a-vis the negative numbers of the contraction.

It is your birthday, and you woke up with a Happy Birthday message from your dear one, along with a bouquet of flowers of, say, chrysanthemums, roses, tulips, etc. You smell the flowers and feel great. Okay, good. But, have you ever thought about where the flowers were sourced from and who were all involved, right from farming and all the way to the florist, finally, to your home? The global cut flower business is 23 billion USD — Rs. 174,800 crores — industry. The major exporters are the Netherlands, accounting for 55% of the trade followed by Colombia (18%), Ecuador (9%) and Kenya (6%). The major consumptions markets are Germany (19%), USA (17%), UK (16%) and the Netherlands (13%). Countries like Kenya, Colombia and Ecuador airship the flowers in refrigerated condition mainly to the Netherlands, which houses Royal FloraHolland, a cooperative and the largest auction house of cut flowers in the world. From the Dutch city, Aalsmeer, as well as these three countries, flowers fan out across the world and reach your hands in less than 12 hours.

Millions of people depend on the cut flower industry for their livelihoods. Reports say that in Kenya, more than 2 million people are involved in the cut flower trade. And it is close to a million in Colombia and around a few hundred thousands in Ecuador. Flower farms in Kenya give around USD 100 as monthly salary to farm workers, most of whom are women. I read that a flower farm in Kenya had to chop the blossoms as there were no buyers and that it needed to spend USD300,000 as the running cost so decided to downsize with the dire prospect of closing down soon. The report also narrated workers, the most being women, being hit hard, with uncertainties of how they would feed their families. Imagine what is happening to those millions of workers of the global cut flower industry, who lost their jobs! Devastating! The economic destruction being brought out by the virus is beyond our imagination.

Kerala, a small state of 35 million people in India, employs around 350,000 saleswomen at textile shops. Their average monthly salary is meagre, around Rs.10000 — USD136. With Kerala under lockdown, the textile shops pulled down their shutters, pushing these hapless saleswoman who already lead a hand-to-mouth existence into penury. I happened to see the interview of such a worker narrating the hardships being endured due to the temporary loss of job. Even when the lockdown gets lifted, many of these workers will lose their jobs as demand for garments will be down immensely in tandem with the overall downward spiral of the economy. Scale up the loss of jobs of these saleswomen to pan-India level, then, to global level, you will get fatigue with many millions of lost jobs in the textile industry.

The economic nightmares happening around and awaiting us due to the pandemic are beyond our imagination and comprehension. Let’s go back to the I.L.O. numbers that 1.60 billion will lose their livelihoods. Since the crisis began, 3.5 million Americans applied for unemployment benefits, taking the total to more than 30 million. This number will go up in the near-term.

The unemployment scenarios unfolding across the globe are heart-wrenching. Reverse migration of millions of workers from the Indian cities to their homes in rural hinterlands; exodus of workers, who flocked over the years to Peru’s capital city, Lima from rural areas to make a living, back to their homes in the countryside; economic hardships awaiting the Central Asian countries likeTajikistan — whose 50% of GDP is contributed by foreign remittance by the workers employed mainly in Russia, which itself faces economic challenges due to the crash of crude oil price and the pandemic; and the impending evacuation of millions of Indians, Pakistanis, and other nationalities from the Gulf countries owing to loss of jobs are only some of the global carnage perpetrated by the virus on the livelihoods of billions of peoples. It will not be a surprise if COVID-19 will add up to and surpass the number put out by the I.L.O. It would be nothing short of a miracle if the world could stop the virus from doing so.