Flattening the Recession Curve

The world is in the midst of a crisis, of a scale which we have not seen in our lifetime -and that is an understatement. When the World Health Organization declared COVID-19 as a Pandemic on 11 March, the definition of pandemic was a declaration about geographic spread, not about the severity of the disease - both in a medical sense and the economic impact.

Given the inevitability of the impact, at this time, the socio-political system is focussed on flattening the contagion curve and rightly so, with a simple intent - Slowdown the speed of contagion to allow time to expand the supply of health care facilities and intensive care capacity.

On similar lines, the severe economic impact of the pandemic is inevitable. Even after COVID-19 is controlled or hopefully eradicated, the long term socio-economic impact needs to be flattened with a simple intent - Reduce the negative impact of the social distancing measures taken by the governments and allow time and resources to heal the economic supply chain.

To understand the economic impact of this pandemic, it is important to understand, the uniqueness of the impact of the socio-economic fabric

• The crisis is global given the extreme global connectedness. During the earlier recessions in this century some of the markets were isolated and served as a rallying point. Not this time around
• The impacted industries have a different and elongated degree of impact. For e.g. the consumer products and electronics have a shorter impact period. Automotive and Oil and Gas will have a slightly longer impact period. Airlines and Tourism will have a negative sentiment for a much longer time to come. Given the spread of the impact the overall impact will continue for much longer than an industry specific impact
• Social isolation will increase in days to come, not only as an immediate response to the contagion, but humanity as a whole will move from a 'Flat earth' view on business to a highly 'self -focussed and regional view' undoing the economies of scale
• Like most pandemics, this pandemic will be an unequal opportunity. High-skilled workers who are more likely to work from home will probably have a lesser chance of immediate and future impacts. The lesser fortunate ones whose daily bread depends on working with their own hands will have to take the higher risk and hence skills will determine the liquidity to sustain this period of unemployment
• The biggest uniqueness is the Supply chain shock. All the earlier recessions were driven by a meltdown in the financial sector. The recession this time is driven by the collapse of the supply chain, which will lead to collapse of existing infrastructure and long term erosion of the supply network
• COVID-19 is still a pandemic surrounded by uncertainty - uncertainty about its cure, uncertainty about it progress, uncertainty about its relapse, uncertainty about the future.
• The long term and highly uncertain nature of this pandemic will absorb away all the economic surplus that was build into our global system

Global recession is inevitable, no geography or market is isolated from its impact. The uncertainty surrounded by lock-down policies and panic will drive a large drop in demand and a huge inertia to bring back the system to its wheels. Probable lay-offs will further drive down the consumption pushing the economy into a tail spin!

What is urgently required is measures to flatten the recession curve and avoid the health crisis from becoming an economic crisis!!!

• Identify how social distancing be relaxed without a spike in infections
• Ensure households can delay EMI and rental payments and have cash-on-hands.
• Ensure a social support network workers receive paychecks even in quarantine or if temporarily laid off.
• Ensure firms (especially the small and medium scale) have enough cash flows to pay workers and suppliers, and avoid bankruptcy.
• Invest in the healthcare sector as kickstarter to the economic turnaround