Bitter Global Recession as Coronavirus Crisis Escalates

Bitter Global Recession as Coronavirus Crisis Escalates

Bitter Global Recession as Coronavirus Crisis Escalates

The world is almost certainly ensnared in a devastating recession delivered by the coronavirus pandemic. The global economy is expected to head into a recession—almost 11 years after the most recent one—as the COVID-19 pandemic continues to shutter businesses and keep people at home. But some economists expect to see a V-shaped recession, rather than the U-shaped one seen during the 2008 financial crisis. In other words, the pain will be much deeper, but shorter, if experts are right.

Now, fears are growing that the downturn could be far more punishing and long-lasting than initially feared — potentially enduring into next year, and even beyond — as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth.

global recession

In a Friday note, Morgan Stanley chief economist Chetan Ahya wrote that he expects the COVID-19 outbreak to peak in April and May and that global economic growth will trough in the second quarter of 2020 with a 5.2% year-over-year decline. That will be a deeper dive than the 2.4% contraction seen in the first quarter of 2009. For the whole year of 2020, he estimates that the global economy will contract by 1.9%, more than the 0.5% decline during the financial crisis.

Still, Ahya expects output levels—particularly in developed markets and China—to recover and reach pre-COVID-19 levels by the third quarter of 2021. That means the total course of the COVID-19 recession will last seven quarters, much shorter than the 14 quarters the financial crisis lasted. Ayha expects global economic growth to jump back to 5.6% in 2021.

Still, if the virus peaks later than expected and economic activities are disrupted for longer due to extended periods of containment measures, it will extend the depth and duration of this recession. In such a bear case scenario, the global economy could see as much as 4.8% decline in 2020, Ahya said.

global recession

Credit Suisse expects that US gross domestic product will fall 33.5% in the second quarter amid the coronavirus pandemic, according to a Monday note.

Stock markets have reflected the economic alarm. The S&P 500 in the United States fell over 4 percent on Wednesday, as investors braced for worse conditions ahead. That followed a brutal March, during which a whipsawing S&P 500 fell 12.5 percent, in its worst month since October 2008.

The situation looks uniquely dire in developing countries, which have seen an investment rush for the exits this year, sending currencies plummeting, forcing people to pay more for imported food and fuel, and threatening governments with insolvency — all of this while the pandemic itself threatens to overwhelm inadequate medical systems.

The pandemic is above all a public health emergency. So long as human interaction remains dangerous, the business cannot responsibly return to normal. And what was normal before may not be anymore. People may be less inclined to jam into crowded restaurants and concert halls even after the virus is contained.

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The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.

If a longer lockdown period is required to contain the virus the damage to 2020 GDP would be bigger. A failure to contain the virus would result in even more adverse outcomes. After we restart the economy’s engines, it will pull out of its nosedive. But without all engines firing, it won’t be a steep climb back up. It could very well be a slow, halting recovery from a severe economic contraction, but it shouldn’t take as long to arrive as the end of the Great Recession.

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