Justin Freeman, Writer, Forex traders, examines how the coronavirus pandemic has affected economies all over the world and which countries are performing best
The coronavirus pandemic has had an unprecedented impact on almost every country on the planet, both in terms of loss of life and economic consequences. Every nation has had to cope as best it can, with many healthcare systems struggling under the sheer volume of cases. Governments and their scientific advisors have tried to balance the implementation of measures designed to slow the spread of the virus, support the healthcare system and save lives, with the need to keep the economy going and stave off, or at least mitigate, the prospect of a severe recession.
The world picture
According to the World Bank Global Economic Prospects report for June 2020, the baseline forecast is for a 5.2% contraction of global GDP in 2020. That would be the deepest global recession in decades and assumes that the pandemic is now receding and that a widespread financial crisis can be avoided. If things go badly, the contraction could be as much as 8%.
Most countries are expected to face recession, with the loss of work and education, fractured trade and supply chains and lower levels of investment potentially scarring the economy for generations to come. In developing economies, years of progress could be reversed with millions sliding back into extreme poverty.
Economies that have escaped infection
Out of 193 countries officially recognized by the UN, only 12 have not declared any cases of COVID-19. Most of those are remote Pacific islands with a population of less than one million, and as such, they don’t register on global economic charts or in currency markets. Turkmenistan, with a population of 6 million, and North Korea, with a population of nearly 26 million, have both claimed to be virus-free, but independent experts have been unable to verify the fact.
As North Korea borders China, where the virus is believed to have originated, its claims to have escaped infection appear unlikely to be true. However, the authoritarian state acted swiftly to close its borders on 21st January and has not reopened them. Large numbers of people were quarantined and strict measures to stop any infection were enforced. As far as outside observers can tell, the steps seem to have been successful, and life in the country seems to be proceeding as usual, with most businesses remaining open.
It must be remembered that North Korea is a mostly state-owned command economy, and the national currency, the Won, is intended for internal use only. This means it’s not an option for forex traders or those who want to brush up on trading methods. The economy is also still suffering due to the loss of trade with China, India, etc., and also with the impact of quarantine measures on agriculture and industrial production.
EU winners and losers
The European Union looks set to experience a deep recession, with lockdown being lifted more gradually than was anticipated. As a result, economic forecasts have been revised downward. The EU economy is expected to shrink by 8.3% in 2020, followed by growth of 5.8% in 2021. If a second wave of the pandemic hits and lockdown continues or is resumed, those figures could be worse. Meanwhile, the uncertainty of Brexit continues to loom over both the EU and the UK.
According to the European Commission’s Summer 2020 Economic Forecast, released at the beginning of July, Poland looks set to come out the best, with a contraction of 4.6% followed by growth of 4.3%. Next up is Denmark, facing a 5.2% contraction followed by 4.3% growth. Sweden, which did not enforce lockdown and kept its economy functioning largely as normal, still faces a 5.3% contraction followed by 3.1% growth.
Italy is considered the worst-hit EU state as it faces an 11.3% contraction then 6.1% growth. France, Spain, Germany and the UK are also all facing severe recession.
A complex situation
The situation in Australia illustrates the complexity of economic forecasting and the difficulty of making accurate predictions. As lockdown was lifted across the country, it initially seemed as though Australia had come out better than expected. The economy looked set to contract by just 4.5% according to the IMF. That was an improvement on the 6.7% contraction forecast in April. But a second spike in Melbourne recently led to borders between New South Wales and Victoria being closed, and severe lockdown restrictions returning to the city. This has knocked confidence in the country’s recovery.
Neighbouring New Zealand is seen as having managed the pandemic most successfully, thanks to an early and severe lockdown and complete border control. The result is that the virus has been mostly eliminated there, with a total of just 1536 cases and 22 deaths. But the economic cost has been tremendous, and a hard recession looms.
Across the world, advanced economies are predicted to shrink by 7% and developing countries by 2.5%. The closest to a thriving economy is China, where the pandemic started. Having recovered faster, China may see 1% growth or even better this year, followed by 8.2% growth in 2021, according to the IMF. While it remains officially a developing economy, China may outpace more advanced nations before too long.