Coronavirus and global financial crisis: Emerging and developed economies move

From the start of 2020, coronavirus (COVID-19) confirmed cases are rapidly growing around the globe. This pandemic started in China and in the last seventy days the total number of infected people worldwide enlarged up to 1.5 million. Latest updates from the WHO confirm around85,000 deaths in 212 different countries and territories.

Accumulatively, the world stock markets observe the 25% decline from January 2020 highs. In the meantime, governments are unveiling the emergency economic relief packages like the US approved $2.2 trillion and the UK offers $81.41 billion. Economists stress that governments relief packages during COVID-19 beats the Global Financial Crisis (GFC-2008) stimulus. Here, we have compared the falls in emerging and developed stock markets; and also discussed how the governments' rescue packages support during GFC-2008 and COVID-19.

Stock markets' reaction during COVID-19 and GFC-2008

The stock exchanges crash as GFC-2008 took a longer period in comparison toCOVID-19. At the time of GFC, this 30% decline happened in global exchanges in one year. However, the 25% decline recorded in world stock markets just in ten weeks. Furthermore, the world indexes are showing a steady lower side closing. These downward trends not only observed in developed economies like the US (S&P500), UK (FTSE100), Germany (DE30) and Japan (NIKKEI225). Primarily, this pandemic started in China and their strict lockdown in Wuhan province save them from a bigger loss (SSE Index declines 15%). Though, Pakistani (KSE100) and Indian (BSESN) stock markets are almost showing the 40% down in their index values.

On 2nd April, Dr Nouriel Roubini (Top Economist) from New York University, US, compares the GFC-2008 with COVID-19 in an interview with World Economic Forum:

"During the GFC (2008) the crisis was severe, but it took about 2 years from the time where you had the unravelling of the US housing market and mortgages until we got the collapse of Lehman and then things got much worse. This time around, we have had economic activity like consumption, residential investment, retail sales, production and capital spending collapsing sharply in a matter of a few weeks of the month. During the GFC (2008), it took almost two years until the stock market was down 30%. Now, it's less than a month."

Besides, this graph illustrates that global crises even evoked in developed (GFC-2008) or in emerging (COVID-19) countries that will more or less affect all world stock exchanges. Moreover, if they don't take preventive measures timely then it will strongly impact the financial institutions and markets of the country.

Relief package unveiled during COVID-19 and GFC

On the other hand, if we compare the rescue packages of COVID-19 and GFC-2008 then we find a large gap between developed and emerging economies. These stimulus packages not only support their general public in crisis time but also help them to motivate poor people to stay at home to save themselves from this global pandemic.

UNCTAD economic development section publishes this news.

"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 on Monday, in an appeal for a $2.5 trillion rescue package to boost their resilience to further hardship."

World-leading economies relief packages during the global financial crisis not more than 5% of their total GDP. But during COVID-19, they are unveiling stimulus packages up to 10% to 15% of their GDP on average. The US offers a total $2.2 trillion rescue package after confirming the 400,000 coronavirus cases. In other developed countries, confirmed cases are 61,000 in the UK, 108,000 in Germany and 4,800 in Japan. These rich industrialised nations have approved the relief packages up to 13% of GDP on average.

Furthermore, if we compare the announced packages in developed with emerging countries then we find a huge difference. In GFC-2008 times, Chinese (13% of GDP) and Pakistani (5% of GDP) governments offered very generous packages to their public. But rescue packages during COVID-19 are almost nothing in South Asian emerging economies (China, India, and Pakistan offer 0.6%, 0.9%, and 2.3% respectively). Even the stock exchange response is much worse thru COVID-19 as to GFC-2008.

Time will prove this move of emerging economies is right or wrong. Conceivably Wuhan province lockdown strategy of Chinese government has made such spending unnecessary and rebounded their manufacturing in March. Now the situation is getting worse in Pakistan (4600) and India (5900) where the cases are coming from far and wide. That will be more interesting and vivid to equate the overall impact of COVID-19 on the world's emerging economies.

(The writer is Assistant Professor (FSM) National University of Computer and Emerging Sciences, Lahore Campus)