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The virus that shut down the world: Economic meltdown – UN News

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The early warning signs


UNCTAD/Jan Hoffmann

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


ILO/Feri Latief

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?


World Bank/Jonathan Ernst

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.

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Kenya's Economy Seen Growing This Year After Dodging Shrinkage – BNN

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(Bloomberg) —

Kenya’s economy is expected to expand this year as activity resumes following Covid-19 lockdowns, boosting tax revenue and government spending.

East Africa’s largest economy is projected to grow by 6.4% this year and slow to 5.5% in 2022, with scheduled elections seen dampening activity, Treasury said in a report on its website. The economy is estimated to have expanded 0.6% last year.

“There has been an improvement in economic activity in the third and fourth quarters of 2020, albeit at a slow pace, following reopening of the economic, but pickup is weak,” according to the Treasury’s budget policy statement. The economy contracted by 5.7% in the second quarter of 2020, after growing 4.9% in the previous three months.

Other Highlights:

  • The finance ministry expects government spending to rise by 3.2% to 2.968 trillion shillings ($27 billion) in the fiscal year starting in July. The fiscal deficit is seen at 7.5% of GDP, narrowing from an estimated 9% in the current fiscal year.
  • The financing gap in the coming year will be plugged by net external financing of 345.5 billion shillings, or 2.8% of GDP, and net domestic borrowing of 592.2 billion shillings, equivalent to 4.7% GDP.
  • While the economic shock from the Covid-19 pandemic has worsened Kenya’s debt indicators, the government is optimistic that the economy will recover and the debt position will improve.
  • “Kenya faces a fiscal risk as the shilling continues to depreciate due to the fact that 51% of the debt is held in external currencies. This has led to increase in debt service budget in local currency and also increase on the stock of debt without inflows.”
  • Lending to the private sector grew by 8.1% in the 12 months to November, it said.

©2021 Bloomberg L.P.

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Kenya's Economy Seen Growing This Year After Dodging Shrinkage – BNN

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(Bloomberg) —

Kenya’s economy is expected to expand this year as activity resumes following Covid-19 lockdowns, boosting tax revenue and government spending.

East Africa’s largest economy is projected to grow by 6.4% this year and slow to 5.5% in 2022, with scheduled elections seen dampening activity, Treasury said in a report on its website. The economy is estimated to have expanded 0.6% last year.

“There has been an improvement in economic activity in the third and fourth quarters of 2020, albeit at a slow pace, following reopening of the economic, but pickup is weak,” according to the Treasury’s budget policy statement. The economy contracted by 5.7% in the second quarter of 2020, after growing 4.9% in the previous three months.

Other Highlights:

  • The finance ministry expects government spending to rise by 3.2% to 2.968 trillion shillings ($27 billion) in the fiscal year starting in July. The fiscal deficit is seen at 7.5% of GDP, narrowing from an estimated 9% in the current fiscal year.
  • The financing gap in the coming year will be plugged by net external financing of 345.5 billion shillings, or 2.8% of GDP, and net domestic borrowing of 592.2 billion shillings, equivalent to 4.7% GDP.
  • While the economic shock from the Covid-19 pandemic has worsened Kenya’s debt indicators, the government is optimistic that the economy will recover and the debt position will improve.
  • “Kenya faces a fiscal risk as the shilling continues to depreciate due to the fact that 51% of the debt is held in external currencies. This has led to increase in debt service budget in local currency and also increase on the stock of debt without inflows.”
  • Lending to the private sector grew by 8.1% in the 12 months to November, it said.

©2021 Bloomberg L.P.

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South Korea Eyes Rich Nation Status as Economy Holds Up – BNN

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(Bloomberg) — South Korea probably ended 2020 with less economic scarring than its developed peers and comparable income levels, as exports helped drive a recovery even with multiple waves of the coronavirus making consumers reluctant to spend.

The Bank of Korea is expected Tuesday to report quarterly growth of 0.9% in the last three months of 2020 that would limit the contraction over the whole year to 1%, according to a Bloomberg calculation.

That outcome, if confirmed, would be slightly better than the central bank’s -1.1% forecast. It would also likely be the smallest contraction among members of the Organisation for Economic Co-operation and Development in the year of the pandemic.

Such a performance would bolster President Moon Jae-in’s claim that the government’s strategy of containing outbreaks without a mass shutdown has helped people’s incomes reach Group of Seven levels for the first time ever. While Korea has imposed some limits on business operations, the measures have generally been less severe than the lockdowns in some countries in Europe.

South Korea’s per-capita income stood at $33,790 in 2019 based on World Bank data, slightly below Italy’s $34,530. Korea has a good chance of topping the European country if income trends are in line with gross domestic product performance. Economists estimate Italy’s economy shrank by around 9% last year.

Still, even if Korea overtakes Italy on this measure, the figures may not capture the whole picture. The winter wave that swept across Korea in the fourth quarter likely prevented a V-shaped recovery, with growth slowing from the third quarter as stricter social distancing rules were enforced. Daily cases peaked above 1,000 in December, before coming down to around 300-400 recently.

Exports were likely the main pillar for growth last year and will remain so for 2021, as the shift to work- and study-from-home practices lift demand for Korean semiconductors and other tech devices. Shipments in December surged at the fastest pace since 2018, and the recovery has extended into January.

“Very strong exports powered by the ‘Zoom Boom’ demand for laptops and work from home devices boosted manufacturing,” said Rory Green, an economist at TS Lombard. “Meanwhile, the third wave completely reversed the recovery in household consumption and dealt a further blow to service sector employment.”

​BOK Frets Over Uneven Recovery as South Korea Waits for Vaccine

With the virus a constant threat and inward tourism halted, the exports momentum has failed to spill over into domestic demand. The economy shed the largest number of jobs since 1999 last month, with the services industry bearing the brunt of losses. That suggests more of a K-shaped recovery even if per-capita figures climb above Italy’s.

“We are concerned that an uneven recovery across sectors and businesses will disproportionately impact the low-income group,” said Lloyd Chan, an economist at Oxford Economics. “Because they tend to have a relatively higher propensity to consume, rising job losses in this group will pose a drag on private consumption.”

The growing divergence between trade and domestic consumption deepens concerns about an uneven recovery, adding to the case for the government to boost its fiscal firepower while the central bank maintains loose policy.

©2021 Bloomberg L.P.

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