As majority of the people often think about one side of the coin, so the other side eludes them. The world has been encountering the severe effect of Covid-19 since the last phase of 2019. Everything has been halted and most importantly the global economy has gone downturn. There, amid the situation, may be a recession coming; one side of the coin what we are thinking right now, but there is, as I mentioned earlier, always the other side of the coin which I would call “Economic Mismatch”— my main concern of that article. Let’s examine the nuances between upcoming recession and Economic Mismatch.
A recession is a situation where inflation-adjusted per capita GDP declines and downturn of the economy is backed up by the impuissance in industrial production, trade, capital flows, oil consumption and unemployment; where all of these macroeconomic indicators are influenced by economic shocks.
The economic shocks may happen by the effect of Covid-19. On account of Covid-19, people are quarantined in their house and keep up “social distancing”. Social distancing —the aftermath of Covid-19— affects economic activities, the activities which involve physical interactions among people, such as tourism, retail trade, restaurants, office work etc. As an evidence WTO said, “The dollar value of world merchandise exports fell by 3% to $18.89 trillion”. Also, there is a presage that the aggregate supply will fall precipitously as the global supply chain is severely affected and consumption, backed by income, will fall, hence there will be a drop-off in aggregate demand(AD), which further escalates unemployment. In a nutshell, the economy will be foundered into a great chaos.
But what’s happening on the other side of the coin?
But what’s happening on the other side of the coin?
I have mentioned earlier, economic activities, which involves physical interactions, are affected and those, which don't require physical interactions, are unaffected. That is why the business of Netflix, Amazon, which doesn’t require physical involvements, is booming and that of restaurants, hotels, retailers and tourism is slumping. Consequently, the aforementioned problem causes “Economic mismatch”; an Economic mismatch takes place when one side of the economy is booming and the other is slumping. Here, the problem induced by Covid-19 is not a general drop in Aggregate demand, rather It is a problem of Economic mismatch.
Let’s observe the figure portrayed below to further beep up my aforesaid argument and to see how market valuation/market capitalization of Netflix, one of the online economic agents, increases within March 2020.
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| Data source: macrotrends |
As the evidence shows, there was a nadir in December 2018 with a market valuation of $107 billion, though in September 2019 It stepped-up to $115 billion, and surprisingly within March 2020 It went up to $162 billion. The fact illustrated above is backed up by “Social distancing”; the more people are quarantined, the higher the rate of time they spend online. Hence, the revenue of these economic agents increased at a higher rate as a consequence of the Covid-19. But the scenario, depicted above, is not plausible in our country, Bangladesh. The reason behind it is the number of users of these online economic agents.
Let’s examine the graph below to look into the apparent paradox.
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| Data source: comparitech |
We, from the graph above, observe that most of the users of Netflix are from Australia, UK, Brasil, Canada, Germany, France, Spain, Japan, Netherlands, Mexico and USA(which is not shown in graph). Evidently, It is seen that Netflix is often being used by the citizens of developed countries; the aftermath of Economic mismatch is severe therein. As the users in Bangladesh are comparatively low, the Economic mismatch is uncertain.
In a nutshell, the effect of Covid-19, in spite of apparent paradox, will cause a severe recession with Economic mismatch—which I mentioned as the other side of the coin.
So what measures should a government take to overcome the Economic mismatch?
Governments in many countries have taken fiscal measures to palliate the pandemic's economic impact. For example, the government in our country has already pledged to provide $90 million—6.9% for apparel manufacturers. But such initiatives will not help address the problem of Economic mismatch. Indeed, the government, in order to take on the underlying problem and find a solution, should devise a schism of economic activity in two sides; one side which involves physical interactions and the other side which doesn’t involve physical interactions. After the schism, the government should finance the adjustments needed to get over the Economic mismatch and provide appropriate goods and services to support the people who involve in physical interactions’s activity, such as restaurants, hotel, tourism, apparel manufacture etc.
References:
1. https://www.project-syndicate.org/commentary/covid19-great-economic-mismatch-by-dennis-j-snower-2020-04?barrier=accesspaylog
2. https://www.investopedia.com/terms/r/recession.asp
