MOSCOW, June 17. /TASS/. If occurs, a new outbreak of the coronavirus pandemic may inflict a debilitating blow to the global economy that can only be compared to a world war, Deputy Chairman of the Russian Security Council Dmitry Medvedev believes.
"There’s a threat of a new outbreak of the pandemic, which can inflict a debilitating blow to the global economy that can only be compared to a world war," he wrote in his article published in the magazine ‘Russia in Global Affairs’ on Wednesday. "The pandemic has created unprecedented challenges for the global economy. All countries have been affected by the pandemic," he noted.
Medvedev referred to the IMF’s projections that the global economy will contract by up to 3% in 2020 compared with 2019 due to the crisis. "This is the biggest drop in global GDP since World War II. To compare, the largest annual decline was a paltry 0.1% during the most recent global financial and economic crisis in 2008-2009," he said.
Economic considerations have become secondary to medical considerations, Medvedev noted. "The choice of economic policy essentially became a choice between economic growth and saving lives, which depends on the traditions and the level of trust in each society. However, a drawn-out economic decline is fraught with human casualties as well," he said.
Projected developments
Medvedev expects GDP to cease to be a critically important criterion for assessing growth dynamics, "at least in the short term." "Moreover, the problem is not so much about the extent of the recession as its duration. A deep, but short-lived decline will be followed by a rebound with subsequent growth, which may not even require any extra investment. However, an extended stagnation is far more dangerous as it tends to destroy infrastructure and degrade all aspects of life," he emphasized.
"Of course, Russia will not escape a general economic recession. According to the Ministry of Economic Development, the country’s GDP will fall by 5% in 2020, real incomes are expected to drop by 3.8% and unemployment to rise to 5.7%, the highest in the past nine years," Medvedev noted.
Three economic shocks affecting Russia
Russia is currently hit by three economic shocks, the first of which is the falling global oil price, Deputy Chairman of the Security Council suggests. "This is the biggest shock, since the domestic economy remains dependent on hydrocarbon exports," he said.
"However, over the past 20 years, Russia has withstood such blows three times, in the late 1990s, in 2008-2009 and in 2014-2015, meaning that it isn’t difficult to assess the impact of this shock on the economy and pinpoint the most effective measures to alleviate its ramifications," Medvedev said, adding that "the main blow is expected to come in 2020," whereas next year the economy will adjust to the new circumstances, "regardless of the oil price."
"However, the second, internal, shock, which was the result of the regulatory decisions by the state trying to slow down the spread of the coronavirus infection, is unprecedented," he noted. "On the face of it, it is reminiscent of the situation in the early 1990s, when individual economic agents dropped out of the economic process, thus severing existing ties. But this comparison works only partly, to say the least. The current problems in the real sector of the economy, the labor market, the social sphere and the banking sector are unprecedented in their nature, and standard approaches to analyzing economic and financial crises are not applicable here. The closing of businesses cannot be explained by poor competitiveness of the companies or the goods. After all, their closing was primarily caused by non-economic decisions," Medvedev explained. "Under quarantine, maximum restrictions apply to the service sector, where production chains are normally straightforward and short," he added.
"Therefore, the recession may be limited to the period of the regulatory decisions, and economic recovery will begin fairly quickly, unless, of course, new waves of the epidemic lead to another round of forced restrictions," Medvedev said.
The declining international demand for a wide range of domestic goods due to a slowdown in the global economy is the third shock for the Russian economy, he said. "A similar situation was observed in 2008-2009 during the global financial and economic crisis. The scale of the current decline in Russia’s exports can be seen if you compare them with that period," Deputy Chairman of the Russian Security Council said, adding that the duration of this fall may be limited to the duration of strict quarantine measures, after which the demand will recover.
Recovery speed
"The speed of demand recovery also depends on the state of the global economy before the shock," Medvedev noted. "In 2007-2008 it was largely overheated after a decade of rapid growth and has been growing quite slowly up until now," he said.
"Therefore, if the pandemic gradually subsides, the depth of the recession after the first round of restrictions on doing business is unlikely to increase and the ensuing return to the natural level of demand can be quite fast," Medvedev stressed, adding though that "it is unlikely to exceed the pre-crisis demand and trade levels."