The A-Z blogging challenge is quite straightforward, blog everyday in April, except Sundays, with subjects that follow the alphabet. It’s all a bit of fun. My subject is ‘A month in lock down’.
R is for recession. The COVID-19 pandemic is not just a health disaster, it has the potential to lead to the largest economic disaster in recent memory, indeed since the inception of what we understand as economics.
China has announced a decline in its economy, by 6.8% in the first quarter of 2020. According to Real Money this is the first decline on record since official calculations began in 1992 and the first fall since the Cultural Revolution in 1976.
Meanwhile, USA Today says that a record 22 million Americans have filed for unemployment benefits over the past month. Already the economic effects of attempts to contain the virus are hurting.
While other economic data is yet to emerge, the two major global economies are suffering and as the saying goes ‘when America sneezes, the world catches a cold.’ The world is set for a serious, deep and long lasting depression.
During the Great depression of 1929 and 1932, worldwide gross domestic product fell by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the Great Recession. Estimates for the post COVID depression range as high as a 30% decline in global GDP.
A word of caution however. As John Kenneth Galbraith noted, ‘The only function of economic forecasting is to make astrology look respectable’. Nobody knows what is going to happen and the world has much greater potential for coordinated economic stimulus activity than in the past, yet all free money has to be paid for somehow and a reduction in trade in the richest economies will have a disproportionate effect on the poorer nations.
The poor always pay.