The speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 global financial crisis, said a report published on Monday (local time) by United Nations Conference on Trade and Development (UNCTAD).
“The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” said UNCTAD Secretary-General Mukhisa Kituyi.
The report shows that in the two months since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of capital outflows, growing bond spreads, currency depreciation and lost export earnings, including from falling commodity prices and declining tourist revenues.
On most of these measures, the impact has cut deeper than in 2008. And with domestic economic activity now feeling the effects of the crisis, UNCTAD is not optimistic about the kind of rapid rebound witnessed in many developing countries between 2009 and 2010.
Portfolio outflows from main emerging economies surged to 59 billion dollars in a month between February and March, calculations show. This is more than double the outflows experienced by the same countries in the immediate aftermath of the 2008 global financial crisis (26.7 billion dollars).
The values of their currencies against the dollar have fallen between 5 per cent and 25 per cent since the beginning of this year — faster than the early months of the global financial crisis.
The prices of commodities, on which many developing countries heavily depend for their foreign exchange, have also dropped precipitously since the crisis began. The overall price decline has been 37 per cent this year, according to the report.
In recent days, advanced economies and China have put together massive government packages which, according to the Group of 20 leading economies (G-20), will extend a five trillion dollar lifeline to their economies.
This represents an unprecedented response to an unprecedented crisis, which will attenuate the extent of the shock physically, economically and psychologically.
The full details of these stimulus packages are yet to be unpacked, but an initial assessment by UNCTAD estimates that they will translate to a one trillion to two trillion dollar injection of demand into the major G-20 economies and a two percentage point turnaround in global output.
“Even so, 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,” said the report.
Given deteriorating global conditions, fiscal and foreign exchange constraints are bound to tighten further over the course of the year. UNCTAD estimates a two trillion to three trillion dollar financing gap facing developing countries over the next two years.