As the world cheered to enter 2020, a sizeable gloomy fate was waiting for us. Coronavirus pandemic has got many countries under its grip. While economies are struggling to keep up with the isolation and the growing number of cases, economists Raghuram Ranjan shares how badly hit we are. This interview was initially published as a part of Harper Lecture series, Chicago Booth and what Raghuram G. Rajan spoke with Chicago Booth Review editor-in-chief Hal Weitzman is a mine of lessons especially for countries like India about many of the looming challenges during the crises.
Here are some of the key takeaways (summaries of the conversation as spoken by Prof. Raghuram Ranjan):
How badly are we hit
As of today, it could get bad. The sense of the damage it can do has been growing. In China, it died out; it’s exploding in Italy. The global chain is disrupted for some time, and there is a lockdown everywhere. This will have a huge effect on the lives lost. Sensible people believe that we will see a decline in GDP in the second quarter. We don’t need to extrapolate it to the year because we will see a recovery.
The one-handed economist answer how we are likely to recover
We have very few people to believe it will be a V shape recovery. For that, we will need a lot of supply chain to work on this measure. This V shape recovery, if it works, will see the bars and restaurants full of people because they might be tired of the lockdown. What China has done is effectively use facts and data to fight the virus; they have adequately maintained social distancing and the lockdown. China has done this through intrusive technology, such as apps that measure quarantine movements.
Which industries will recover first and change
It’s hard to understand psychology after COVID-19. Now there are places we are learning to do things differently. Education is one of them. Kids are getting classes online. This is similar to other industries too. People are now finding it possible to conduct meetings online. So, many things might change. But there are the old ways also that will carry value. Thus, manufacturing which can be done with distancing will recover first, and high value-added services such as telemedicine, education, virtual services will come back, high contact services will last. Travel and food or bars will take time. A sufficient and cheap test will be required for such sectors.
What affect will this have on the global economy
As far as the global economy goes, no part of the world is immune to the virus. We have seen how it is like with China. Then it spread to Europe and America. So, everywhere in the world will be affected. There is some hope that heat might slow the virus. But we are yet to see that. But any hope of global economic growth can be seen to be dissipating at this time. The industrial West is looking at a 5 to 10 % negative GDP growth. For the year despite the rebound that is expected in the end of the year, industrial countries will see negative growth. Markets will go the same way. Even China may go this way. Hopefully, it will be better next year. The reason why the governments are putting in money and trying so much is that they are trying to put the economy in a coma, in suspended animation so it can be woken up as soon as the pandemic is behind us. Much of the recovery will be made next year.
Nationalism which already pretty strong before the virus was accentuated. We have seen how the US has blamed China for spreading it. China has said it originated from the US. In India, people are saying it’s a Muslim plot. So, this situation can explode making it harder for communities to get together. That’s one possibility. And, I think that, the more we elect nationalist leaders, there is an eventuality of a break down in the international order. In trying to protect the country, they will try and bring the supply chain inside and depend less on others; this is a load over global growth. I think there would be no answer. Because think about taking away exports from developing countries and telling them now you are on your own. This would mean a much slower global growth. Then people would want to immigrate. This will create new problems before we solve the old ones. There is, however, a change in temper across the world. If we have to be a thriving economy, if we want to have a booming travel sector, we have to have an open world. Which means we would have to focus much more on the problems that divide us. And move on to a world that corresponds to the reality of today.
Wealth Gap post-COVID-19
Surely, the pandemic is accentuating the gap. Take India, for example. We have seen the devasting scenes of the migrants who have no sense of whether they will have food to eat and they started for their homes on their feet because trains have stopped. This is accentuating the fork lines which was already there. I want to take this more optimistically as we move ahead, we are now getting to know how the underprivileged are unprotected and we now need to remedy it. Because we need to think is that such a crisis happens once in a lifetime. But there are so many other challenges, so now its time to think about what kind of societies are better positioned to deal with these kinds of goals.