The global economy will contract by 3% this year as countries around the world shrink at the fastest pace in decades, the International Monetary Fund says. The IMF described the global decline as the worst since the Great Depression of the 1930s. It said the pandemic had plunged the world into a “crisis like no other”. The Fund added that a prolonged outbreak would test the ability of governments and central banks to control the crisis. Gita Gopinath, the IMF’s chief economist, said the crisis could knock $9 trillion (£7.2 trillion) off global GDP over the next two years.
An economic consequence of the ongoing COVID-19 pandemic, the first major sign of the coronavirus recession was the 2020 stock market crash on 20 February. IMF projects suggest that the coronavirus recession will be the most severe global economic downturn since the Great Depression, and that it will be “far worse” than the Great Recession of 2009. The United Nations (UN) predicted in April 2020 that global unemployment will wipe out 6.7 per cent of working hours globally in the second quarter of 2020—equivalent to 195 million full-time workers. In western nations, unemployment is expected to be at around 10%, with more severely affected nations from the COVID-19 pandemic having higher unemployment rates. The developing world is also being affected by a drop in remittances.
The recession saw the collapse of the price of oil triggered by the 2020 Russia–Saudi Arabia oil price war, the collapse of tourism, the hospitality industry, the energy industry and a significant downturn in consumer activity in comparison to the previous decade. Global stock markets crashed around 20 to 30% during late February and March 2020, respectively. During the crash, global stock markets made unprecedented and volatile swings, mainly due to extreme uncertainty in the markets.
2019 Global Economic Slowdown
During 2019, the IMF reported that the world economy was going through a “synchronized slowdown”, which entered into its slowest pace since the Great Financial Crisis. ‘Cracks’ were showing in the consumer market as global markets began to suffer through a ‘sharp deterioration’ of manufacturing activity. Global growth was believed to have peaked in 2017, when the world’s total industrial output began to start a sustained decline in early 2018. The IMF blamed ‘heightened trade and geopolitical tensions’ as the main reason for the slowdown, citing Brexit and the China–United States trade war as primary reasons for slowdown in 2019, while other economists blamed liquidity issues.
In April 2019, the U.S yield curve inverted, which sparked fears of a 2020 recession across the world. The inverted yield curve and trade war fears prompted a sell-off in global stock markets during March 2019, which prompted more fears that a recession was imminent. Rising debt levels in the European Union and the United States had always been a concern for economists. However, in 2019, that concern was heightened during the economic slowdown, and economists began warning of a ‘debt bomb’ occurring during the next economic crisis. Debt in 2019 was 50% higher than that during the height of the Great Financial Crisis. Economists have argued that this increased debt is what led to debt defaults in economies and businesses across the world during the recession. The first signs of trouble leading up to the recession occurred in September 2019, when the US Federal Reserve began intervening in the role of investor to provide funds in the repo markets; the overnight repo rate spiked above 6% during that time, which would play a crucial factor in triggering the events that led up to the crash.
Sino-American Trade War
The China–United States trade war occurred during 2018 to early 2020, and caused significant damage across global economies. President Donald Trump in 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are “unfair trade practices”. Among those trade practices and their effects are the growing trade deficit, the alleged theft of intellectual property, and the alleged forced transfer of American technology to China.
In the United States, the trade war brought struggles for farmers and manufacturers and higher prices for consumers, which resulted in the U.S manufacturing industry entering into a ‘mild recession’ during 2019. In other countries it has also caused economic damage, including violent protests in Chile and Ecuador due to transport and energy price surges, though some countries have benefited from increased manufacturing to fill the gaps. It has also led to stock market instability. The governments of several countries, including China and the United States, have taken steps to address some of the damage caused by deterioration in China–United States relations and tit-for-tat tariffs. During the recession, the downturn of consumerism and manufacturing from the trade war is believed to have inflated the economic crisis
The global stock market crash began on 20 February 2020. Due to the COVID-19 pandemic, global markets, banks and businesses were all facing crises not seen since the Great Depression in 1929.
From 24 to 28 February, stock markets worldwide reported their largest one-week declines since the 2008 financial crisis, thus entering a correction. Global markets into early March became extremely volatile, with large swings occurring in global markets. On 9 March, most global markets reported severe contractions, mainly in response to the COVID-19 pandemic and oil price war between Russia and the OPEC countries led by Saudi Arabia. This became colloquially known as Black Monday I, and at the time was the worst drop since the Great Recession in 2008.
Three days after Black Monday I there was another drop, Black Thursday, where stocks across Europe and North America fell more than 9%. Wall Street experienced its largest single-day percentage drop since Black Monday in 1987, and the FTSE MIB of the Borsa Italiana fell nearly 17%, becoming the worst-hit market during Black Thursday. Despite a temporary rally on 13 March (with markets posting their best day since 2008), all three Wall Street indexes fell more than 12% when markets re-opened on 16 March. During this time, one benchmark stock market index in all G7 countries and 14 of the G20 countries had been declared to be in Bear markets.
With the lockdown still in hand and the consistent fall in economy, it seems we have a tough time ahead. The recession, as predicted by the various agencies across the word, is going to be very hash upon us. A lot of people are going to lose their jobs with nowhere to go. Companies may go bankrupt and entire nations will be in debts. We all have no choice but to face the crisis.
“This too shall pass.”