Will Emerging Economies Be Affected by the Pandemic Related Downturn in 2020?
It was even worse than after the collapse of Lehman Brothers in 2008. As the COVID-19 pandemic spread across the globe from Asia, foreign investors turned away from emerging and developing markets almost overnight. In the early phase of the pandemic alone, the International Monetary Fund (IMF) estimates that more than $100 billion (€88 billion) in foreign capital was withdrawn from these countries. It is "a crisis like no other" with "an uncertain recovery," the IMF described in its updated outlook for the global economy in June. Advanced economies might lose a year or two of economic growth, while developing and emerging countries face a lost decade.
What’s known is that Chinese leaders’ confidence in their own rise, and the competitiveness of their alternative authoritarian capitalist economic model grew enormously during and in the aftermath of the global financial crisis of 2008 and 2009. Could the coronavirus have the reverse impact? The virus may or may not be overblown as a pandemic threat, but Xi’s legitimacy in any case will be tested in his handling of the emergency, given how much power has been concentrated in his own hands. Conversely, his authority could grow if he’s perceived at handling the crisis well. Meanwhile, the Atlantic Council’s Digital Forensic Research Lab this week spotted what might be a sneak preview of how the global finger-pointing might shift through disinformation should the crisis deepen. Several narratives have spread first on extreme Russian nationalist sites and to the Chinese internet, blaming the U.S. for the coronavirus outbreak. They’ve now been amplified by the Russian mainstream publications Pravda and Izvestiya. It’s reminiscent of Operation Infektion, when Russian propaganda during the Cold War tried to pin the spread of the AIDS virus on the United States.
In the end, the historian Henry Adams once noted that politics is about the systematic organization of hatreds. Voters who have lost their jobs, have seen their businesses close, and have depleted their savings are angry. There is no guarantee that this anger will be channeled in a productive direction by the current political class—or by the ones to follow if the politicians in power are voted out. A tide of populist nationalism often rises when the economy ebbs, so mistrust among the global community is almost sure to increase. This will speed the decline of multilateralism and may create a vicious cycle by further lowering future economic prospects. That is precisely what happened in between the two world wars, when nationalism and beggar-thy-neighbor policies flourished. There is no one-size-fits-all solution to these political and social problems. But one prudent course of action is to prevent the economic conditions that produced these pressures from worsening. Officials need to press on with fiscal and monetary stimulus. And above all, they must refrain from confusing a rebound for a recovery.