The Perfect Economic Storm Has Started

Apr 6, 2020 | Finance | 0 comments

On Friday, Kristalina Georgieva, Managing Director of International Monetary Fund (IMF), announced that the global economy is in a recession. It is also currently estimated that the current Covid-19 pandemic will cost the world economy $1 trillion (in 2020 alone, yikes). With a confirmed global recession and a crippling pandemic, I think we can all agree that the perfect economic storm has started.

Are We Officially In A Global Recession?

Recessions are determined by a drop in economic growth over two successive quarters, essentially a decline in global economic activity. The most recent recession felt across the world was in 2009, and Georgieva says this one could be worse.

Analysts are now comparing our currency economic situation to that of 1929, when the Great Depression witnessed a stock market crash that sent the S&P falling 86% in under 3 years. It did not recover until 1954.

But rumours surrounding a possible global recession were making their rounds long before the pandemic erupted. Mark Zandi, the chief economist of Moody’s Analytics, published a piece in October 2018, stating that we were two years away from a recession. 

Whether due to Covid-19 or not, we’re officially in a global recession, with our hands tied behind our backs. Georgieva added that “Countries needed to boost spending as a safeguard against bankruptcies and possible market debt defaults. This is a very big crisis and it’s not going to be sorted out without a very massive deployment of resources.” 

What is Covid-19 Ramifications on Economies?

Tough news to receive when the world is literally at a standstill. As countries close their borders, non-essential businesses are forced to close, and people are losing jobs by the masses, propelling the economic wheel to a point where we can turn around a recession is dire, if impossible. But that’s not the only thing we need to worry about. The pandemic is sweeping its way through 177 countries killing in the tens of thousands.

From an economic perspective, the key issue is not just the number of cases of Covid-19, but the level of disruption to economies from containment measures,” head of global macro research at Oxford Economics, Ben May, stated in a report last week. With the uncertain oil price and mass supply chain interruptions from China, companies are likely to see huge disruptions to their trading, as well as the ripple effect of companies involved. Few countries are going to be left unscathed from this “perfect economic storm”.

The United Nations Conference on Trade and Development (UNCTAD) published a report on 30 March stating that “…slowdown in the global economy to under 2 percent for this year, and that will probably cost in the order of $1 trillion, compared to what people were forecasting back in September.” 

The Perfect Economic Storm

So we’re in a global recession, this pandemic is going to cost us approximately $1 trillion, and thousands of people are losing their lives to a currently-incurable virus. Things are grim. It’s clear that the perfect economic storm has started and is forcing leaders around the world to scramble to find the perfect balance of action for both commerce and health. Of course, human life is more important than money, but eventually, the economy will need to rectify itself so that the people can survive.

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