The Coronavirus Recession

The world is already reeling from the effects of a pandemic. There is a public health crisis in more than 200 countries around the globe. Close to half of the 7 billion people in the world are living under a lockdown. This is a unique situation, given the fact that a medical emergency is about to create financial mayhem in the world. All the other recessions up till now had financial causes.

In the last days of March 2020, the International Monetary Fund has come out in the open and announced that the entire world is undergoing an economic recession. They predicted the recovery to happen sometime in the middle of 2021. A lot of critics feel that this announcement is premature. This is because, by definition, a recession only happens when the economic growth of a country is negative for two consecutive quarters.

Two quarters have not passed since the beginning of the coronavirus crisis. However, organizations like the International Monetary Fund are pretty sure that the effects will last for two months or more. The reason behind this conviction is that they can see tell-tale signs of recession in other walks of life.

Some of the symptoms of recession have been listed down in this article.

Signs of Recession

The following signs of recession have become evident in the last few days.

  • Stock Market Crash: The size of the stock market crash is not unprecedented, but the speed is. For instance, during the 2008 crisis, the stock market crashed more than 65%. However, this fall was not triggered immediately. Rather it took close to six months for the fall to happen. On the other hand, the coronavirus crisis has crashed the markets by only 30%. However, this has happened in merely 18 days! Also, the end of this crisis is nowhere in sight. Hence, it is difficult to predict how low the market will go. A stock market fall of more than 30% is severe enough to say that the economy is heading towards a recession.

  • Lower GDP: Even though the GDP has not seen a negative growth rate for two consecutive quarters, it is quite likely to do so. This is because the entire sectors of the economy are not working.

    Social distancing is the only policy known to man that can halt the spread of this disease. However, social distancing is incompatible with many business sectors. For instance, travel, retail, aviation, entertainment, restaurants, and such other industries are almost seeing zero sales. These sales are unlikely to increase even in the near future. Hence, even if there are no reports which report the fall in GDP, an average person can see it with their naked eyes. Economic reports run with a lag. The report showing negative growth in the GDP is likely to come out after a few months. However, individuals and organizations can already feel the effects of a recession.

  • Higher Unemployment: Increase in unemployment is another tell-tale sign of a recession. Once again, the rise in unemployment numbers has been alarming. The United States workforce is likely to see about 20% of its workforce being out of jobs. This is pretty close to the 24% number, which was prevalent during the Great Depression and is the highest number recorded in American history. This number is expected to rise as much as 32% in America! In other countries such as Spain, Greece, and Italy, unemployment was already a problem, and this crisis could end up making one out of two people homeless.

Effects Temporary: The coronavirus led recession is likely to be faster and deeper than the crisis of 2008. However, the good news is that the effects will not be as long-lasting.

For instance, it took the world almost six to seven years to come out of the housing crisis of 2008. Also, that was after governments all over the world were following loose monetary policies in an attempt to counter the effects of the recession.

If experts are to be believed, the effects of coronavirus should be temporary. This is because as soon as a vaccine is developed, people are likely to resume their normal lifestyle. They will continue to go shopping, eating out at restaurants, and so on. Unlike the 2008 crisis, the erosion of wealth is not going to be permanent. The crisis started with a public health problem and may end as soon as the problem is solved.

Faster Recovery: As mentioned above, the effects are likely to be temporary. However, governments all over the world will have to be careful while phasing out social distancing measures. This will have to be done in a staggered manner.

If the restrictions are eased at once, then the likelihood, the resurgence of the virus, and deeper economic pain may very well be on the cards. Economists are speculating about what the shape of the recovery curve will look like. However, regardless of the shape, they all seem to agree that the world should be able to defeat the coronavirus crisis sometime in 2021!

The bottom line is that the economic forecast is scary in the short run. A significant recession is likely to affect the entire globe in 2020. However, recovery should be fairly quick, and the world could come back to business as usual in 2021.

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