The global economy is facing an unprecedented healthcare crisis as well as an economic crisis. GDP growth rates, trade flows, cross-border investments, and supply chains are negatively impacted. According to Johns Hopkins University, at the date of this writing, the COVID-19 healthcare impact has swept across the planet, has nearly impacted over 7 million people, and has resulted in the death of more than 480,000 individuals. The economies of China and the US have certainly contracted, and the available data, while tentative, shows significant contraction in the Chinese economy as well as other Asian economies, such as India.
The two leading economies, the United States and China, number one and number two, respectively, will have significant contractions and a slowdown. While the US government provided a significant stimulus package, exceeding 3 trillion dollars, and is likely to add more, the Chinese government is reluctant to provide a significant stimulus package that will be large enough to return the Chinese economy to a semblance of normality. The recent debt burden of the Chinese government, estimated at 1 trillion dollars, arising from its belt and road transcontinental initiative, is significant. Moreover, the economic impact on the slowdown in China is likely to also severely affect small and medium-sized enterprises. Small and medium-sized enterprises account for over 65% of China’s output, and the funding of these small and medium-sized enterprises is not always on solid ground. The Chinese economy is likely to be in a slowdown that could last beyond the next two years.
The Chinese economy contracted significantly with over 70,000 firms closing their doors and sending their workers home. This is the first significant Chinese contraction since the late 1970s. JP Morgan has also indicated that the US economy is contracting significantly during the second quarter of 2020, and this contraction may continue throughout 2021. Unemployment in the US is as high as 13 to 16%.
The Coronavirus pandemic is both an economic crisis and a healthcare crisis. The global economy is likely to shrink in 2020, and various estimates range; however, a 6 percent decline in the global economy is highly likely. The US economy and the Asia-Pacific economy will have a reduction in employment, and the unemployment numbers for the US are likely to be as high as 13.6 to 16%. Youth unemployment is likely to increase significantly across Organization for Economic Cooperation and Development (OECD) economies, Asia-Pacific economies, and emerging economies. The slowdown and the recession are likely to be the worst in the last hundred years. GDP growth rates are likely to decline significantly, and the same goes for China. The decline in the Japanese GDP for next year is likely to be 6 to 7%, and likely to be 3 to 7% for India as well. The lockdown had an immediate impact on the decline of the GDP, estimated to be a decline of 2 percent in GDP for each month of lockdown.
The Indian economy is equally as bad as the Chinese economy, if not worse. The prime minister, Narendra Modi, implemented one of the most severe lockdowns, ordering all Indian citizens to stay indoors, and many businesses were closed and transportation was halted, severely impacting the poorest segment of the Indian population, which relies on daily work. By halting the transportation network, many poor, rural Indian migrant workers, who work in India’s big cities, had only four hours to return to their villages. While the data is sketchy, around 23 million Indian workers lost their jobs in April.
There are significant concerns about the role of government and the recovery. While leading economists have spoken about a V-shaped economic recovery, more are suggesting that a U-shaped economic recovery is more likely. Government spending could help with the recovery, and if you look at India, with its population of 1.3 billion people and its unemployment during the lockdown, moving from 8% to 26%, and here the Indian government of Prime Minister Modi needs to increase government spending and focus on helping the small and medium-sized businesses. While the government of India stepped in with small subsidies, leading Nobel laureates such as Amartya Sen, indicated that the government should spend more money to help the recovery by advancing a 100 USD monthly emergency payment during this phase of the recovery for each worker. While the average Indian lives on 3.20 USD daily, the added monthly emergency support by the government could help advance the recovery.
The result of the COVID-19 certainly curtailed trade across the globe, and also in the Asia-Pacific region. China, which tentatively agreed to buy US food products in its negotiations with the Trump administration, has yet to do so. Moreover, trade in medical supplies has been hit hard. In 2018, China accounted for 42% of world exports in medical supplies. Immediately following the COVID-19, China significantly reduced its exports of medical equipment. While this impacted the importers of Chinese goods, it also led to shrinkages in the Chinese GDP, estimated at a reduction of between 10 to 20% of the GDP. As a result of the pandemic, the volume of world trade, decreased by 20% due to barriers in trade.
The lockdown has closed linkages often within national economies. It also had a spillover to trade with neighbors. Moreover, the flow of cross-border capital was reduced and, as an illustrative point, the United States government has recommended that the main federal pension system stop buying Chinese shares. Also, the US economic advisor, Peter Navarro, has suggested that US medical supplies companies should refocus on producing within the United States, thus curtailing and impacting China’s dominant control in medical supply exports.
With all this economic devastation throughout the Asian economies and the US, returning to growth will not be simple. Keeping workers away from their factory jobs in order to slow down the growth of COVID-19 will significantly impact production, reduce supplies, and distort global supply chains within Asia and across the Asia-Pacific economies. Factories that will have fewer workers, will have less production. Needing fewer workers will also create further unemployment and unpaid workers are likely to consume less. This will impact the GDP growth rate, particularly for the consumer-based US economy. All of this does not bode well for the global economy, nor for the Asia-Pacific economies. The International Monetary Fund (IMF) is predicting a slowdown and a significant contraction for the global economy for 2020 and 2021.
In conclusion, the global recovery rests upon the following: First, beat the virus and produce a vaccine to curtail its future spread. Reopen the economies while adhering to safe medical practices. Subsidize the most impacted segment, particularly low-income groups. Learn to accept high government debts. Focus on working in place and rely upon a reshaped work environment, where artificial intelligence and virtual work are present and where robots are likely to replace some of the work that can be done by low-level, skilled workers.
We are aware at this time that you may have returned to vastly difference academic scenarios than the ones you left in the Spring. While we have been unable to carry on as usual, all of us most likely have found ways to adapt our academic pursuits to this new reality. In our own humble way, the Journal of Asia-Pacific Business is dedicated to assisting you with your efforts to maintain scholasticism.
To aid you in your new and continuing efforts, we offer four articles that are somewhat related in theme. Three of the four investigate marketing trends and the fourth is on increasing profitability, which could be construed as an adjunct of marketing.
The first article is, “Brand Desire: Scale Development and Empirical Examination,” by Richa Joshi, Gitarattan International Business School; and Rajan Yadav, Delhi Technological University. The authors have developed a three-point scale to measure the “love-desire” of brands. Our second offering, “Social Media and Consumer Engagement: The case of Malaysian Student Entrepreneurs,” by Abdullah Al Mamun, UCSI University; Noorshella Binti Che Nawi and Noorul Azwin Binti Md Nasir, Universiti Malaysia Kelantan; and Syed Ali Fazal, International University of Business Agriculture and Technology, examines the viability of increased social media in marketing.
The third article is, “An Empirical Investigation of Factors Influencing Young Indian Consumer Decision Making,” by Ruchika Sachdeva of Jack Welch College of Business and Technology, Sacred Heart University. The author examines the effectiveness of online advertising on purchasing choices. The final article, “Impact of Bank-specific and External Factors on Profitability: An Empirical Study of PSU banks in India,” by Birajit Mohanty and Sankersan Sarkar, Manipal University examines various internal and external factors affecting the Indian banking industry.
We are deeply grateful for our readers, writers, and reviewers, all fellow scholars for your continued support of this journal. We wish you much success in your new and continuing efforts. Thank you!