India, China could be exceptions to recession in world economy due to coronavirus pandemic: UN trade body

An economic package of US $2.5 trillion is needed for developing economies to deal with the fallout from the coronavirus pandemic, the United Nations said on Monday. 

A silver lining is, however, that China and India are less likely to be hit by recession due to the lockdown caused by the novel coronavirus, a report prepared by the UN trade and development body said. 

The economic fallout from COVID-19 is likely to get “much worse” before it gets better for some six billion people living in developing economies, the UN said as it appealed for a multi-trillion dollar package to boost their resilience to further hardship. 

The figure is based on an analysis by United Nations Conference on Trade and Development (UNCTAD), UN News said in a report.

The UN trade and development body said commodity-rich exporting countries will face US $2 trillion to US $3 trillion drop in investment from overseas in the next two years. 

"An economic downturn in these emerging economies was already evident in the last quarter of 2019, before the new coronavirus outbreak emerged in central China last December," said Richard Kozul-Wright, UNCTAD director of globalization and development strategies. 

Kozul-Wrightwarned that the health crisis is still to come in many developing countries.

“Now, if that crisis comes as these countries have been significantly weakened by the economic shockwaves from the crisis. And that is a…very vicious combination of an economic crisis and a health crisis. So we’ve got to find ways of strengthening the healthcare system and services in developing countries and building up resilience on that front very quickly,” he said.  

He said the $5 trillion global rescue package plan by rich industrial nations should reduce the extent of their shock - “physically, economically and psychologically”. 

It is also expected to create $1 trillion to $2 trillion of demand among the major G20 economies, boosting global manufacturing by two per cent, he wrote in a UNCTAD report.

Kozul-Wright warned that the world economy will go into recession this year with a predicted loss of global income in the trillions of dollars. 

“This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India”, he said. 

UNCTAD believes that part of the problem for many developing countries is that informal workers form the backbone of their emerging economies, which amplifies their difficulties in responding to the crisis, according to UN News. 

A four-point recovery plan of UNCTAD’s four-pronged strategy initially calls for a  US $1 trillion investment injection for weaker economies. 

This would come from so-called “special drawing rights” governed by the International Monetary Fund (IMF) which would need to “go considerably beyond” the 2009 allocation made in response to the global financial crisis, the UNCTAD report said.  

The second measure is a debt freeze for distressed economies, involving an immediate standstill on sovereign debt payments, followed by significant debt relief.  

UNCTAD cited Germany's example when half of the country’s debt after World War II, was cancelled.  

Around $1 trillion in debt should be cancelled this year, overseen by an independently created body, the UN agency said. 

The third measure targets $500 billion investment in poorer countries’ emergency health services and related social relief programmes. 

UNCTAD has also urged the implementation of State-led capital controls to curtail already surging capital outflows from these developing countries. 

This would help to reduce a cash shortage driven by sell-offs in developing country markets and to arrest declines in currency values and asset prices, the agncy noted. 

UNCTAD estimated that the proposed package is similar in size to the amount that would have been delivered to developing countries over the last decade if countries in the Development Assistance Committee of the Organisation for Economic Co-operation and Development had met their 0.7% Official Development Assistance target. 

“Advanced economies have promised to do ‘whatever it takes’ to stop their firms and households from taking a heavy loss of income,” Kozul-Wright said. 

“But if G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity,’ there must be commensurate action for the six billion people living outside the core G20 economies," he said.