According to the International Monetary Fund (IMF), the world is going through the worst economic downturn ever in the history of the world. Its research shows that the global economic growth is going to fall 3% this year. Will this bring the worst recession to the world?
In the last few months, the situations of every country have changed dramatically due to the spread of Coronavirus. Since the declaration of Coronavirus as a pandemic by the World Health Organization (WHO), thousands of people around the world have been found positive to COVID-19, many resulting in the deaths. As of now, there are more than 3,000,000 positive cases in the world, of which over 387K have resulted in deaths.
In such a crisis, every country is putting in their efforts and implementing required necessities like quarantines, social distancing practices, etc. to stop the spread of this deadly virus. This has brought the entire world to the biggest lockdown ever. This is a very rare crisis in history, and is impacting everybody and everything, whether it is the livelihood of people, existence of businesses, and government.
Governments of every country are spending a huge sum to protect the citizens of the country. The policymakers are looking to support the people, companies, businesses, as well as financial markets. However, the things are still very uncertain when it comes to finding when these things will be over. What will be the landscape of the world when we all come out from this pandemic and the great lockdown? Will it bring the world’s worst recession ever?
What is recession?
Recession can be called a slowdown or decline in the economic activities for at least two quarters. This slowdown in economic activities reduces the trades and industrial services, which results in messing up the entire economy and its growth. During a recession, the economic factors like GDP, employment, business profits, etc. decline substantially.
Impact of recession
Recession has many consequences, and all these consequences are for the worse. When a country faces recession, the rate of unemployment increases, the average income decreases, and governments have to borrow funds from other countries. Following are the main impacts of a recession:
- Rise in rate of unemployment
- Decline in average income
- Increase in poverty
- Decline in product and asset pricing
- Rise in inequality
- Fall in tax revenue as government has to borrow more
- Companies go out of business
Is the Coronavirus pandemic bringing the worst recession ever?
According to the IMF, the global economic growth will decrease to -3% in 2020. These stats are based on an assumption that the Coronavirus pandemic will affect the world till the end of the second quarter this year, and things become normal in the second half of the year. The IMF is calling this the worst recession after the Great Depression and the Global Financial Crisis.
If the pandemic gets over in the second half of 2020, then the global economic growth may bounce back to 5.8% in 2021. But that’s possible only if the pandemic gets over in the next three months. If it doesn’t, the economy will suffer even more.
Along with the IMF, the European Union (EU) has also shared some similar insights as the economy of the entire Europe has also got a big hit by the pandemic. The EU says that the economic losses in 2020 could be the worst ever for Europe since World War II.
In such a scenario, the entire world is wondering how to handle the economical crisis, or the countries will get many years back. Most of the countries are providing a grim forecast on their economy. The most common forecast is that even if things start running smoothly and the societies don’t close again after putting out the restrictions, the economy will still be down for the next many months. Talking about the European Union, it says that the economy of Europe will be down by 7.4% this year.
What will happen in 2021?
Many researches from leading firms show that if the coronavirus pandemic comes to a halt this year, then the global economy may grow by around 6% in 2021. However, if the number of coronavirus cases rises again in 2021, then things will be different, and the economy may suffer more. Moreover, the financial losses are supposed to continue to be there even after 2020, 2021, and beyond if the crisis doesn’t end soon.
As long as the virus is spreading and the cases increase, governments can’t stop themselves from putting restrictions on people and businesses. And since the businesses can’t return to normal, the financial losses will be there no matter what.
The Great Lockdown: Impact of coronavirus pandemic on businesses
If we talk about the US alone, then around 48% of the workers in the country are working for the small and medium businesses (SMBs). In this pandemic, the SMBs and startups are the ones who are at high risk of going out of business and the market.
As per the report by Brookings, nearly 48 million jobs are vulnerable and at risk, because of SMBs getting collapsed. This is a very high number. Moreover, it is not less than an impossible task today to find a new job. Every business is looking to cut costs and reduce budgets to survive in the market.
Another research by Mainstreet shows that around 33% of the SMBs in the US are vulnerable to going out of the market in the next five months. The rate of business closure in the US has increased by roughly 200%. These statistics and numbers are enough to show that the Coronavirus pandemic is by far the worst recession that has ever happened in the history of the world.
The Coronavirus pandemic is not only causing a health crisis, but also a financial crisis as well. Undoubtedly, the world is going through the worst recession ever in history. We just hope that things come back to normal so that people can live peacefully, the rate of unemployment can decrease, and the world can witness economic growth again.