The Covid-19 pandemic will transform the global economic order for the worse, with a “subverting market” of China emerging as the alternative hub to the United States, says a background note from Niti Aayog, the official think tank on the India’s long-term economic policy. -the long-term economic impact of the pandemic. The note, which was reviewed by HT, paints a grim picture of the global economy to come, doesn’t rule out something like the Great Depression of the 1930s, and sees increases in poverty, unemployment, and debt. It will take large-scale political coordination for “an appropriate realignment of strategies” against China’s growing influence to prevent this from happening, the note said.
“The world economic order will undergo material transformation” and “the forces of market subversion will now have an unprecedented impact on world trade and economies, greater in scale and pace than at any time in this world. ‘history’ as the post-pandemic global economic order shifts from unipolar to bipolar, the note says.
True, the world economic order has moved away from a unipolar state for a long time, with China gradually increasing its share in global GDP. According to IMF data, India and China’s share of global GDP was just over 1% in the 1960s, while the United States accounted for almost 28% of global GDP. In 2018, the United States’ share had fallen to 21.6%, while China’s, ranked second, had risen to 13.1%. India, although ranked fifth in terms of GDP, accounted for just 3.4% of global GDP in 2018. While the covid-19 pandemic originated in China, it was able to mitigate its economic impact in very little time. According to the Global Eoconmic Prospects released by the IMF in October, China is the only major economy expected to escape an economic contraction in 2020.
“The risk of China’s significant concentration in essential building blocks of the global economy, from APIs to metals, has become perfectly evident. Manufacturing diversification or the risk of supply concentration has become a priority for global companies and, for the first time in recent history, even for governments around the world. This could lead to a sharp rise in protectionism and a realignment of trading partners at the global level, favoring some but a significant risk for most, ”he adds.
The memo sees China as a source of free market disruption and fears the Chinese state may use its influence to undermine multilateralism. “Uncertainty as to whether the new leader will embrace a market economy and resurrect the multilateral order or subvert free markets and multilateral order through state-sponsored monopoly strategies becomes a growing risk as the new leader is gaining a larger share of the global economy and dominating a growing number of segments of the global economy, ”he says.
The global economy was already struggling even before the pandemic, and it never really recovered from the impact of the global financial crisis in 2008, the note said. The impact of Covid-19 will only make matters worse; it says. It is also extremely tough on the ongoing bull run in global financial markets. “Whether the current positive sentiment and momentum in global markets is sustainable is not so much the question as when will it end,” he says.
He doesn’t even rule out something like the Great Depression of the 1930s “which followed the roaring twenties (1920s) if loose liquidity conditions persist globally, especially for the largest economies, and the leader of global economic growth pursues deflationary policies. for the world economy ”.
Admittedly, the memo does not see China as the only problem facing a global economic recovery. Profit-driven innovations are likely to weigh on mass incomes, which is in line with the World Bank’s projections of increasing global poverty. “Productivity increases are likely to continue despite subdued economic activity, as companies continue to adjust to another new normal while focusing on profit growth, which dampens job prospects,” says- he.
The impending crisis is not, however, entirely inevitable. “Perhaps a global pandemic of unprecedented scale and speed like the current covid-19 crisis is what is needed to get global economies to work together in crisis mode in order to get the economy out. world of its recent funk, The long-term impact of Covid-19 is likely to be higher risk, lower rewards, and slower growth for global economies, trade flows and financial markets – unless this is only proving to be a catalyst for resetting the world order and the appropriate realignment of strategies in the global interest, ”the note said.