How serious will the global economic recession be?


The International Monetary Fund (IMF) June 2020 research report predicts that if the COVID-19 pandemic ends by the end of September 2020, the global economy will grow negative 5.8% in this year.

People wear masks to prevent COVID-19 infection in Tokyo, Japan.  Photo: AFP / VNA
People wear masks to prevent COVID-19 infection in Tokyo, Japan. Photo: AFP / VNA

Hong Kong’s Thuong Bao (China) said that if the above assumption is not correct and the epidemic worsens, the economies of many countries in the world could go into recession.

However, according to the current development trend of the COVID-19 epidemic, as of August 25, 2020, there have been 23.53 million confirmed cases of COVID-19 infection worldwide, including 810,000 deaths. The number of confirmed COVID-19 infections in the US has reached 5.73 million, while in India the number also exceeds 3 million.

Moreover, COVID-19 epidemic not only continues to spread in countries around the world, but also appears the second wave, the third wave of COVID-19 outbreaks in some countries and regions such as Korea and Italy.

It can be said that up to now, the spread and severity of the COVID-19 epidemic has yet to be determined how far. The change of the disease is not determined, so the impact and impact on the economy of the countries in the world is also difficult to determine, we can only analyze it simply based on the fact that happened.

Declining economic growth is inevitable

Looking at the economic data of the second quarter of this year, the GDP of the territory of Taiwan (China) and South Korea decreased by 0.58% and 2.9% compared to the same period last year, while GDP of China respectively. The country decreased by 6.8% compared to the first quarter of 2020 and in the second quarter of 2020 it recovered to a growth rate of 3.2%.

The disease situation in these countries and localities is well controlled, the economic growth rate going down is not too great.

However, in some other countries the situation is not the same. For example, the COVID-19 epidemic has gone out of control in the United States, whether the number of confirmed infections or the number of deaths is among the world’s leading countries.
In addition, the scope of the blockade and isolation of the US is very wide and a long time, causing the entire US economy to basically fall into a state of stalemate, GDP in the second quarter of 2020 of the major economy. the world has decreased 32.9% over the same period last year, this is an unprecedented rate.

Therefore, many American economists believe that due to the impact of the COVID-19 pandemic, the United States will basically not have a V-shaped recovery in the second half of this year, with a high possibility of economic growth. The US will enter a recession, and at least until the end of 2021 can step out of the predicament.

Similarly, the economic data of European countries in the second quarter of 2020 also declined very clearly. For example, Spain’s GDP, which was severely affected by the COVID-19 epidemic, fell 22.1%, Italy’s GDP fell 17.3%, France’s GDP fell 19% and UK’s GDP fell sharply. 21.7% after translation. Only Germany is doing quite well, with GDP falling just 11.7%.

Judging from these data, due to the impact and impact of the COVID-19 epidemic, the economies of developed countries in the second quarter of 2020 have basically experienced a serious recession and this recession. Ultimately whether or not it is relatively uncertain depends entirely on each country’s level of COVID-19 epidemic control over the next few months.

The impact of the pandemic on its inhabitants

However, although GDP growth figures of developed countries plummeted in the second quarter of 2020, thanks to strong relief policies by the government, the real life of these countries’ people will not be affected. many and great impact as outside imagined.

For example, the spending power of the American people during the epidemic has not waned, the financial statements of major US retailers (such as Home Depot, Lowe’s, Target, Walmart, Amazon) in Q2 / 2020. are better than expected.
In addition, American households currently have 3,400 billion USD in deposits, higher than the 2,200 billion USD of June 2019 and the increase in deposits is over 55%; The US savings rate has also increased from 8.3% in February 2020 to 33.5% in April 2020.

The situation is even more pronounced in Canada, where two members of an unemployed family can receive as much as over CAD 50,000. With this form of cash aid, many people basically do not want to go to work, because they can also live well when they receive the disease relief money without having to worry about their living.

Therefore, over the past two months, Canadian retail sales have grown much better than expected. This also shows that the impact and impact of the epidemic on people in the developed countries are not as great as imagined.

However, for developing countries, this is not the case. After the COVID-19 pandemic spread in these countries, many developing countries adopted a number of quarantine policies to avoid the high rate of infection caused by COVID-19.

Trade activities were suddenly halted, making these countries’ economies the hardest hit. The World Bank (WB) estimates that more than 100 million people could fall into extreme poverty.

A sharp decline in exports in developing countries has severely damaged the livelihoods of many small businesses and citizens; public payments rose sharply and the nation’s finance was in a serious deficit.

All of these will seriously affect the global economy. Therefore, in the second half of 2020, in the context of ineffective control of the COVID-19 epidemic, except for a few countries that have good control of the epidemic, global economic growth will decline, even possibly The possibility of economic recession in some countries is very large.

It is difficult for countries to reduce debt

What is more serious is that governments have adopted large-scale relief and stimulus policies to revive severely damaged economies, causing governments’ debt levels (in developed countries and developing countries are all alike) increased to the highest level since World War II.

According to IMF data, as of July 2020, government debt in developed countries accounted for 128% of GDP, nearly equal to 124% after World War II ended in 1946.

Currently, the economies of countries that grow slowly, the population is shrinking and inflation is low, reducing the debt in the future may not be easy. This will become the biggest obstacle to countries’ economic growth and improve the well-being of their people in the future. Such current long-term issues should be considered.

Design by NewsLax