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Question: Markets across the globe are facing crisis aggravated by outbreak of Coronavirus. The lack of demand has reduced global GDP. Explain the possible measures to insulate global economy from volatile nature of disasters.

 

AnswerThe global economic growth, which had witnessed a slump due to trade war between major economies, has once again plunged due to fears arising from Coronavirus epidemic. This has witnessed a fall of 2-3% of global GDP.

Current scenario of growth slump

  • Petroleum price crash
    The crude oil prices have crashes owing to reduced demand from Eastern economies like China and South Korea, who are suffering from Coronavirus epidemic. The reduced demands have reduced the prices and countries such as Russia have refused to cut their production output. This has prompted Saudi Arabia to artificially decrease market price to capture global market share.
  • Reduced imports and exports
    Import and export of goods and services have witnessed a major fall due to lack of demand as well as reduced production. Countries like China and Japan which constitute a major part of export economies have cut their outputs, leading to decrease in amount of trade value. In addition transport economy has also suffered due to flying restrictions imposed by most of the countries.

Measures to tackle such scenarios

  • Reducing speculation
    Investments in short term security or markets are risky in such situation as they are easily spooked and will resort to pull out. This immediate pulling out of money will create economic crisis that will affect most of the countries, especially growing economies.
  • Decentralised growth sectors
    It is necessary to distribute the growth through various sectors instead of a single one. This will reduce the risks associated with economy as chances of all sectors getting affected is low.
    Ex: Gulf countries are majorly oil dependent and any volatility in prices will cripple the economy.

Way forward
In times of crisis, all countries must stick together and must refrain from misusing problem in one country for their own benefits.

Thus, globalisation has a large role to play in current scenario where effect of a single problem spreads across the world. Relevant checks and balances have to be put forward to tackle such a problem.

Updated on 17 Mar 2020 |   Added on .12 Mar 2020  |  by admin