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The Coronavirus Recession is Here

Aug 19, 2020 10:23 AM 4 min read

An economic storm is upon us. The lockdowns and restrictions imposed by governments across the world curtailed business activity. Trillions of dollars in stimulus packages announced to support national economies has led to a surge in sovereign debt.

It was always obvious that the coronavirus pandemic would have serious economic consequences. The numbers have now begun rolling in - and they’re not pretty.

Japan, the UK, France, Italy, Germany, Spain and the US are some of the countries that have released GDP data for the second quarter of CY2020 (April-June), the first to be entirely mired in coronavirus chaos.

In the coming days, more countries will release economic data - including Australia, New Zealand and India (whose economy may have contracted by as much as 26%). 

As it’s clear to see, nearly all countries are now mired in recession - and the pandemic is not even over yet. In the coming two-three weeks, we’ll have more economic data on our hands and would be able to paint a more wholesome picture. But it’s going to be more red bars and contractions. And the recovery is likely to be long, painful and costly.

(Ironically, China is expected to experience net growth this year even though that’s where COVID-19 originated in the first place!)


Before the Storm

Global growth engines like China and India were already confronting sector-wide slowdowns in 2019. Brexit cast a shadow over the Eurozone. Crude oil competition in the Middle-east culminated in a mammoth price war between Saudi Arabia and Russia (remember when that was the top global economic worry?). And Donald Trump kept threatening tariffs on every other country on Earth and championed a full-blown trade war with Beijing.

All these factors dragged down global growth and slashed forecasts. However, an all-out recession was narrowly but largely avoided.

COVID-19 proved to be the spark that ignited the fire.


The Ides of February and March

In late February, global stock markets began to plummet, with some countries reporting their largest one-week declines since the Great Recession. March was a month of high volatility. It became clear soon that the global economy was staring at a full-fledged crisis. 

(Side note: stock markets aren’t a particularly reliable metric here - despite the initial stumble, they have been rising in recent months even as other economic indicators like factory activity, unemployment and wage growth have either stagnated or worsened.)

Soon the IMF and World Bank warned of a global recession worse than that of 2008-09, and probably the worst since the Second World War or even the Great Depression.



The Uniqueness of COVID-19

But that’s not to say the coronavirus might not have caused a recession had the global economy been stable and secure before it struck.

It is true that no pandemic in history has caused a global recession (the recession that accompanied the Spanish Flu a century ago had its origin in the First World War.)


But COVID-19 was different. It happened to a world that was more globalised, more connected and more interdependent than ever before. Case in point: the sheer number of economies affected by the recession right now - a number higher than the two times the entire planet was literally engulfed in world wars!


One caveat of globalisation is that volatility in one corner of the global supply chain can easily ripple through the entire system. And this pandemic is one that has made the very concept of human interaction a life-threatening one.

There was probably no way a recession could have been avoided.


Ripple Effects

Furthermore, there are two consequent concerns associated with the COVID-19 recession:

  1. That it may take a long time for things to return to normal: The pandemic’s end is nowhere in sight. Infections and death tolls are still rising. Meanwhile, the race for a vaccine is still on. Some analysts fear that even if a vaccine is finalised on time and mass-produced by the billions and distributed fairly, swiftly and widely, it may be too little, too late. It may be a long time - even years - before people willingly visit cinema halls or restaurants or gyms without a second thought. The legacy of the coronavirus may outlast it.
  2. It could lead to a double-recession: This was a theory posited by the Economist Intelligence Unit (EIU). It argued that world governments are announcing such hefty stimulus packages to keep businesses afloat that the debts they are racking up in the process may further push the global economy into a second recession.


The Counterview

Some economists oppose these cataclysmic worldviews. They opine that while the COVID-19 recession will be brutal, it will also be fleeting. That the world economy will be up and running again in a matter of months. This side of the house contends that a V-shaped recovery is on the cards.

Of course, this hypothesis is predicated on the assumption that a coronavirus vaccine will be in the market by the end of this year and the various fiscal and monetary aid measures will be effective in shoring up supply and encouraging demand.


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