Foreign investors have pulled an estimated $26 billion (over Rs 1.9 lakh crore) out of developing Asian economies amid the crisis of the coronavirus pandemic, fuelling concerns of a major recession in the region, according to a report by the Congressional Research Center. Out of this, more than $16 billion (Rs 1.2 lakh crore) was pulled out of India.

In a report titled ‘Global Economic Effects of Covid-19’, the independent US research organisation said the pandemic is challenging governments to implement monetary and fiscal policies that support credit markets and sustain economic activity. “In doing so, however, these policy approaches are displaying differences between countries that promote nationalism versus those that argue for a coordinated international response,” it added. “They also are intensifying policy differences between developed and developing economies.”

In Europe, over 30 million people in countries such as Germany, France, the UK, Spain and Italy have applied for state support. Data for the first quarter of 2020 indicates that the eurozone economy contracted by 3.8%. This is the largest quarterly decline since the series started in 1995, the report said.

The preliminary data for the United States indicated that the Gross Domestic Product growth of the country fell by 4.8% in the first quarter of this year – the largest quarterly decline since the fourth quarter of 2008 during the global financial crisis. Over the five-week period from mid-March to late-April, more than 30 million Americans filed for unemployment insurance, the report stated.

While almost all major economies are shrinking as a result of the coronavirus, only three countries – China, India, and Indonesia – are projected to experience small, but positive, rates of economic growth in 2020, it said.

This came days after United States-based multinational investment bank Goldman Sachs also predicted that the Indian economy will experience the worst recession because of the countrywide lockdown to contain the coronavirus pandemic.

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The Congressional report said that after a delayed response, central banks are engaging in an ongoing series of interventions in financial markets. National governments are also announcing fiscal policy initiatives to stimulate their economies. But considering the “highly fluid” nature of the current economic situation, uncertainties concerning the global pandemic and the effectiveness of public policies intended to curtail its spread are adding to market volatility.

Compounding this is a historic drop in the price of crude oil, the report added. The trend reflects the global decline in economic activity, prospects for disinflation, and contributes to the decline of the global economy through various channels.

The Congressional report cited the findings of the International Monetary fund, which has argued that recovery of the global economy could be weaker than projected as a result of: lingering uncertainty about possible contagion, lack of confidence, and permanent closure of businesses and shifts in the behavior of firms and households.

The International Monetary Fund on April 14, had released an updated forecast on the global economy. Labelling the projected decline in global activity as the “Great Lockdown”, the organisation concluded that the global economy would experience its “worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.”

The IMF had cut the growth projection for India to 1.9% from the earlier estimated 5.8% for the financial year 2020-2021 as the intensifying coronavirus pandemic continues to crush the global economy. But the IMF added that only India and China will see positive growth in 2020.