Global lockdown: Economies under siege

Since we talked about coronavirus epidemic in our February cover story, the outbreak has turned into a global pandemic over the past 30 days, pushing the world in an unprecedented period of crisis and uncertainty.

As we write this cover story, about 19 countries, India being the latest, are under lockdown, implementing forcible social distancing.

Indian economy, and social life, is under full lockdown for 21 days till April 14 even as 24 states had partially entered a lockdown till 31 March earlier.

That means most economic activities, from small businesses to large factories, have been severely impacted in these countries, most of which are either major resource exporters or consumers.

With no definitive treatment in sight and fatality rates continue to be high in countries like the UK and the USA, Italy and Indonesia, how long the lockdown would continue depends upon how affected countries and their local authorities manage and control the spread of the coronavirus.

Any missteps, as seen initially in China, and then in Italy and United States would only prolong the ordeal for the global population.

While China is now limping back to work, restarting its mines and factories and shopping malls, its connectivity to the most of the outside world would continue to remain broken preventing cargo shipments till the global lockdown continues.

China, where it all started, is the largest energy consumer in the world, accounting for more than 80 percent of global oil demand growth last year.

Oil prices have fallen continuously over four weeks, by about 60 percent since the start of the year to 18-year low with international benchmark Brent crude falling to $24.52 per barrel as on March 19.

Australian thermal coal prices declined in February by 2.9 percent on month to average $67.6/mt amid the impact of the Covid-19 outbreak in China.

While natural gas hub-based prices hit record lows in both the US and Europe, amid more than comfortable inventory levels, coal prices declined to a lesser extent as lower demand for power generation in China was met by a drop in coal mining output in the country

Argus’ 6,000 kcal/kg cif Amsterdam- Rotterdam-Antwerp (ARA) daily index is up slightly compared with the end of February while 6,000 kcal/kg fob Newcastle assessment down by around 3 percent.

While the spread of the coronavirus appears to be stabilizing in much of Asia, the long-awaited initial figures from China for January and February were much worse than feared.

S&P Global Ratings thinks the effects of the pandemic have pushed the world economy into recession, dragging full-year GDP global growth down to just 1-1.5 percent. The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation might have begun there.

The situation remain grim in Europe and US with social distancing or reduction in person-to-person contacts in the all the locked down economies is leading to demand collapse that will take industrial activities sharply lower in the second quarter.

Closer of factories and transportation means much less energy consumption across the globe leading to situations of thermal power plants in several economies including India being idled due to lack of demand for electricity.

In such a scenario, predictions about when global economic activity would rebound and demand revive, remains just speculations and best-case scenarios.

“While China will see a sharp deceleration in 1Q20 and to a lesser extent in 2Q20, a recovery in the country is projected to take hold in second half of 2020, supported by government-led stimulus measures. However, the impact of Covid-19 related developments outside China will continue well into 2Q20, especially in Asia, the Eurozone, US and Middle East. Therefore, all these regions are forecast to see a slowdown through 2Q20, recovering only towards the second half of 3Q20. By 4Q20 global activity is assumed to have normalized. Depending on future developments, further downside risk remains,” Organization of the Petroleum Exporting Countries said.

Coronavirus epidemic can potentially have “far-reaching economic and social consequences”, a rare joint statement issued by two most prominent global energy groups, International Energy Agency and Organization of the Petroleum Exporting Countries, said.

The statement was issued after executive director of IEA, FatihBirol, and Secretary General of OPEC, Mohammad Sanusi Barkindo, spoke by phone to review the current situation.

Economic impact

The economic impact is already visible in the countries most affected by the outbreak. For example, in China, manufacturing and service sector activity declined dramatically in February. While the drop in manufacturing is