The virus that shut down the world: Economic meltdown
Economic Development
With millions forced to work from home this year, offices and shops closing as part of containment measures, and travel severely curtailed everywhere, it was inevitable that the economy would suffer. In part five of our look back at 2020, we focus on the seismic effect that COVID-19 has had on the global economy.
The early warning signs
UNCTAD has estimated global economic losses of $1 trillion in 2020.
Even before the virus had officially been declared a pandemic, it was clear that the shutdowns, travel bans and other restrictions on movement would be serious.
Back in March, the UN trade agency, UNCTAD, was forecasting that around $1 trillion would be lost to the global economy over the year, and the International Monetary Fund (IMF) and World Bank arranged for a multi-billion dollar injection of UN-back global funds to be made available to low-income and emerging markets.
Despite this assistance, the outlook, especially for some six billion people living in developing countries, was grim, with UNCTAD warning of a “looming financial tsunami.
Young and lower-skilled workers bear the brunt
A woman follows health protocols by wearing a face mask at work in a restaurant in Indonesia.
In May, the UN Department of Economic and Social Affairs (DESA) forecast that the global economy would shrink by almost 3.2 per cent in 2020, equivalent to some
$8.5 trillion in losses, and the International Labour Organisation (ILO) warned that nearly half of the global workforce could see their livelihoods destroyed due to the continued decline in working hours brought on by lockdowns. The following month, the World Bank confirmed that the world was in the middle of the worst recession since World War Two.
Lower-skilled workers were hard hit, in wealthier as well as developing economies. Mass lay-offs took place in the service sector, particularly industries that involve personal interactions such as tourism, retail, leisure and hospitality, recreation and transportation services. The ILO followed up in December, with a report showing that wage increases are slowing, or even reversing, hitting women workers and the low-paid hardest: this trend is expected to continue even with the rollout of vaccines. Young people were also particularly affected: more than one in six had stopped working by May and those who were still in work saw their hours cut by almost 23 per cent.
Is universal basic income the answer?
Providing a universal basic income could be a central part of fiscal stimulus packages.
Confronted by this flood of negative data, the idea of universal basic income (where governments give a minimum sum of money to all citizens, regardless of work status or income) began to gain traction within the UN.
In May, A report by the Economic Commission for Latin America and the Caribbean (ECLAC) proposed that governments ensure immediate temporary cash transfers to help millions of people struggling to meet basic needs, as the massive fallout from COVID-19 rippled across the region’s economies.
When UN News interviewed a senior official at UNDP, Kanni Wignaraja, she said that the pandemic had upended economies so severely, that bolder ideas were now needed.
“At the UN, we’re saying that, if there isn’t a minimum income floor to fall back on when this kind of massive shock hits, people literally have no options. Without the means to sustain themselves, they are far more likely to succumb to hunger or other diseases, well before COVID-19 gets to them. This is why, for UNDP, it is so essential to bring back a conversation about universal basic income, and to make it a central part of the fiscal stimulus packages that countries are planning for”.
By Summer, a UN Development Programme (UNDP) report was recommending a temporary universal basic income, for the world’s poorest people, as a way to slow the surge in COVID-19 and enable close to three billion people to stay at home. The study showed that workers who lack any kind of social safety net have no choice but to venture outdoors, putting themselves and their families at risk.
Contacted in December by UN News, UNDP elaborated on some of the way that temporary basic income has helped to slow the spread of COVID-19, and provide a safety net for people in need.
For example, this year saw several UN agencies working together to help the Government of Cambodia roll out their first digital cash transfer system for people living below the poverty line, a system which is, says UNDP, now the backbone of the Government’s COVID-19 cash transfer program for the poor. The Governments of Bangladesh, Indonesia, Malaysia, the Philippines, Viet Nam and other countries have introduced similar cash transfer systems.