In May 2020, several indicators show the severe economic and social impact of COVID-19. In this note we will reflect on the conditions in the labour sector in advanced (AE) and emerging (EE) economies in the face of the virus; the role of the State; the incentives to get the economy and global value chains moving; and finally give an overview from the world economy.
Firstly, the labour sector in the AE and EE has two unusual features that stand out in the face of the unemployment of economic activities. On the one hand, the AE have very developed unemployment insurance, and on the other hand, the EE have not even been able to reduce the levels of informal employment. While the former have elements to compensate workers' income in the face of the impact of job loss, the latter not only experience job loss but also transfers the formal population to the informal sector. The informal sector, it should be noted, lacks monetary support in situations like the present.
AE's have an economic space that allows for isolation policies to contain the contagion. The EE finds isolation difficult since a large part of the population is in the informal sector and does not have the means to subsist without going out to work. Governments in both sets of countries seek to reopen, in the face of second-quarter forecasts with severe falls in GDP - up to 40% for the USA and Canada.
The country with the highest absolute number of deaths at a global level by COVID-19, as can be seen in the first figure, is the USA. With the registration of new infections in South Korea, China, Spain, and Germany, there have been signs of a second wave of infections, indicating that reopening the economies is a potential danger.
The number of deaths from COVID-19 per million inhabitants, by country, San Marino, Belgium and Andorra lead with 1,208; 740 and 621 deaths per million. It is worth noting that, among the 15 states with the highest mortality per million, 13 countries are European and two North American, with the USA in 11th place and Canada in 14th. Sweden, which also chose not to implement containment measures, has more deaths per million inhabitants than the US, with the former having 319 and the latter 238.
The COVID19 pandemic is a reminder that health is a public good, and the need for a universal and free health system is fundamental. Similarly, in the face of the lack of income, comprehensive unemployment insurance must be considered. This insurance is achievable through fiscal means, but not through corporate tax reductions or austerity policies. Nevertheless, there are considerable differences between EA and EE in terms of spending capacity or debt. Before the crisis, the US already had a total public debt of more than 105% of the GDP in 2019. With the business support packages to alleviate the effects of COVID19, these levels will increase.
Recent data point to drastic falls for international trade. Until April 2020, the US registered falls in both imports and exports, which began in March 2018 as an effect of the trade war. In China, on the other hand, imports continued the fall that started in December 2019. That contraction comes from the interruption of the global value chains (GVC) and the reduction in the prices of raw materials, including oil. There was also a drop in volume due to the closure of economic activities (see http://www.obela.org/en-analisis/the-fall-in-world-trade-volume-and-comm...).
For economies that export commodities as well as processed inputs, the fall in imports will be sharper. Countries in Latin America, Africa, and Southeast Asia may be hard hit, resulting from a double effect: a fall in domestic production and a fall in exports. Thus, the economic impact of COVID-19 may be much more significant than that estimated in the latest IMF projections in April. It projects a global contraction of -3% of GDP, -5.9% in the US, -7.5% in the European Union, and a drop in China's growth to 1.2%.
The pressure to reactivate the GVC to reduce the economic impact is increasing, but the second wave of contagion has been seen in the countries trying to return to normal. The widely publicized Swedish example has a very high cost in human lives, as we have seen. The dilemma in the concise term is: recover the economy with a loss in human beings or continue with the isolation and risk a more significant economic fall.