Global recession seems inevitable, possibly in emerging markets too, say two economics professors at the London Business School. Demand slowdown will be much larger than the initial supply shock, they observe.
In an ongoing analysis, supported by the European Research Council, professors Paolo Surico and Andrea Galeotti termed uncertainty, panic and lock-down policies as key to large drop in demand. According to them, the investment of many firms and spending of many households depend largely on cash flows and large drop in demand may result in closure of such firms, resultant increase in lay-offs, add to further drop in consumption and drive economies into a depressing loop.
The researchers however said that with little or no government interventions, economic costs will be immense. Stating that the government priority should be on health expenditure and a strategy to flatten the contagion curve that may spike back in the Fall of 2020, they proposed 'random testing' to identify probability of individual threats well in advance and then carry out targeted surveillance and testing on those individuals who are most likely to be affected.
"Test a representative sample of the population (independently of symptoms), recording socio, economical, demographic and locational characteristics at the household level. Use standard statistical methods to infer the household characteristics most likely to predict whether someone is infected or not in the whole population", they said. The researchers wanted countries to develop surveillance strategies based on the information revealed in nation-wide contact tracing and targeted social distancing initiatives. "Collecting the right data and conducting extensive statistical analysis can save many lives. The goal is to prevent a second peak and flatten the contagion curve that may spike again in the Fall 2020', they say.
The suggestions seems to be broadly in line with what India is doing at the moment. The researchers wanted focus on cash disbursement to firms and households, financial backing from the Central banks including printing money if necessary. They also said global shock needs global response and no country has fiscal capacity to stand alone.