The rapidly spreading coronavirus global epidemic has threatened many activities across different industries, sending the world economy into recession as declared by the International Monetary Fund (IMF) on Friday.
The outbreak of the deadly viral pneumonia has already shuttered businesses, halted tourism and hospitality activities, stifled travel, led cancelled conferences and events, and sent stock markets into free fall.
This has seen industrial output go down in many countries, unemployment rise, decline in capital flows, decline in trade activities while consumption rates have dropped, and causing economic shock globally.
"It is now clear that we have entered a recession – as bad as or worse than in 2009,” IMF’s Managing Director, Kristalina Georgieva said on Friday last week.
Germany, the economic engine of Europe, and the U.K. were both on the precipice of a downturn even before the virus struck, with 0 per cent growth in the fourth quarter of 2019.
China, the world’s second-largest economy, is likely to have contracted in the first quarter for the first time in decades amid production halts and quarantine measures, ultimately weighing on the global economy.
Industrial output plunged 13.5 per cent in January and February from a year earlier, retail sales fell 20.5 per cent, and fixed-asset investment dropped 24.5 per cent, according to Fortune.
The unemployment rate jumped to a record 6.2 per cent in February, when the outbreak worsened and much of the economy was shutdown.
Similarly, the economies of Japan, France and Italy were already shrinking or stalled before the virus outbreak.
Africa’s big economies like South Africa, Nigeria, Morocco and Egypt have already been hit harder.
This prompted Moody’s to downgrade South Africa’s credit ratings to junk status. The government bonds will now be removed from world bond index, triggering billions of dollars of capital outflows.
A recent report from the United Nations Economic Commission for Africa estimates that the continent could lose up to 1.4 percentage points of GDP growth as a result of the pandemic
Effect on Rwanda
While John Rwangombwa, the Governor of the National Bank of Rwanda, said that it was too early to start asking questions related to the impact of COVID-19 on the Rwanda economy, economists have predicated a worse impact than the one witnessed in 2009 during the global economic crisis.
Economists say Rwanda is not spared from the recession, especially as supply chains are disrupted.
Seth Kwizera, an economist at the Economic Policy Research Network Rwanda (EPRN), says all economic sectors in Rwanda will be affected by the ongoing crisis, especially in the first quarter of 2020.
"Factories right now are not operating at their normal capacities since workers are not able to go to work because of the lockdown and most traders have also closed shop,” he says.
That, he adds, will weigh heavily on the economic growth especially in the first quarter when the numbers are publicly released.
The economist highlights that huge amounts of money is now being invested to fight Covid-19, something that was not planned before.
"It’s like we had (development) plans, but we didn’t have coronavirus in those plans. This will affect Africa and our country,” he says.
The report from UNECA estimates that Rwanda will particularly be affected through tourism, which is expected to contract 6 per cent this year as a result of the global pandemic, and this could lead to fiscal imbalance.
Rwanda suspended commercial flights from entering the country, and introduced other measures that made the movement of people.
This has hurt almost every sector, especially tourism and hospitality which depended on aviation.
Hotels were, for instance, counting losses this month when the government announced a two-week lockdown, while workers linked to the conference tourism lost their jobs as events were cancelled.
Looking back
The world had last experienced recession between 2008 and 2009, when countries like the United States and those in Europe experienced a rise in unemployment, company profits fell, financial markets tumbled, and the housing sector collapsed.
Following the decline in GDP growth worldwide, the global demand for goods and services in Rwanda from to the global market declined and the prices were affected.
For example, in minerals the prices of tin came down dramatically by approximately 40 to 50 per cent, while coffee prices followed the same negative trend.
Private transfers in different forms taken together declined as well.
The average monthly volume of transfers that were coming in through banks reached $95 million in 2009 down from $110 million the previous year.
Francois Kanimba, the former Governor of the National Bank of Rwanda, expects the impact of this global recession to be way too huge compared to the 2009 crisis.
"Learning from the negative impact of the coronavirus, this is going to be a very deep shock,” he says.
He believes there is no country that will be saved from the crisis since "every country is really integrated in the global economy.”
Kanimba says Rwanda’s economic growth for the past years has been driven, among others, by tourism and global conferences, which has created a whole industry.
"Now this industry is totally down. This is going to significantly affect the Rwandan economy,” he notes.
The trend of foreign direct investment in Rwanda has been growing, reaching $463.0 million as of last year from $409 million in 2012, according to the National Bank of Rwanda survey.
"This growth is going to be affected by the incapacity of investors to go around the world, including Rwanda, to look for opportunities,” Kanimba noted.
Amina Rwakunda, the Chief Economist at the Finance Ministry, said the ministry was preparing a brief economic analysis of the impact of the global economic recession on Rwanda, which will be presented to Cabinet for review sometime this week.