The Future of the Global Economy

Is there a coronavirus crash? Are we headed into a global recession?

As stock exchanges closed, businesses shut their dops, shops stop opening and countries reduce trading, after waves of panic buying and depleting stores of essential goods, the economic security of millions worldwide is threatened.

Governments are intervening to try to stave off the collapse of companies and livelihoods. Many economists believe the world has already entered a recession

Wuhan in China, where the virus originated, triggered the speedy economic collapse of one of the most populated countries in the world today.

Chart showing Covid-19's impct on the Chinese economy. FT China Economic Activity index.
Financial Times
Chart showing China pollution from factories

A global recession this year that will be at least as severe as the downturn during the financial crisis more than a decade ago, followed by a recovery in 2021.

The International Monetary Fund

This is an economic tsunami.

Mark Zandi, chief economist at Moody’s Analytics

The surge is so unprecedented in historical terms that it essentially defies efforts to forecast where the economy may go in the future.

Matthew Yglesia

In 2008, we saw how the financial uncertainty spreading from the downturn in real estate—by way of subprime to funding markets and from there to the balance sheets of major banks—could threaten an economic heart attack. It was this massive financial shock, piled on top of the losses to households from a downturn in the real estate sector, that caused economic activity to contract.

In the worst of times, over the winter of 2008-2009, more than 750,000 job losses were recorded every month—a total of 8.7 million over the course of the recession.

Major industrial companies like GM and Chrysler stumbled toward bankruptcy.

For the global economy, it unleashed the largest contraction in international trade ever seen.

Thanks to massive intervention of both monetary and fiscal policy, it did not become a deep and prolonged recession.

After a contraction of 4.2 per cent in gross domestic product, a recovery began in the second half of 2009. Unemployment peaked at 10 per cent in October 2009.

There will be at least four waves of economic pain, he told me, each building on the last. Wave one is “the sudden stop,” the unexpected cessation of economic activity all across the country. A month ago, people were going to work, eating in restaurants, paying child care workers, buying flights, planning car purchases, looking at new homes, growing workforces, holding conferences.

Now, vast swaths of the country are sheltering in place, and much of the economy has simply … stopped.

Unemployment could reach 30 percent, and GDP could drop by 50 percent.

James Bullard, president of the Federal Reserve Bank of St. Louis
Chart showing Stock Market trends since the COVID-19 outbreak - 19 March

Aviation industries have made redundancies, enforced use of a holiday, and given unpaid leave to vast quantities of employees. Non-essential store closures risk even more employment for those companies unable to survive the incubation period.

Growth could stagnate

If the economy is growing, that generally means more wealth and more new jobs.

It’s measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.

The world’s economy could grow at its slowest rate since 2009 this year due to the coronavirus outbreak, according to the Organisation for Economic Cooperation and Development (OECD).

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