ANALYSIS - Global Economy Could Suffer Great Depression-Like Freefall But COVID-19 Is One-Time Shock

ANALYSIS - Global Economy Could Suffer Great Depression-Like Freefall But COVID-19 is One-Time Shock

MOSCOW (UrduPoint News / Sputnik - 27th March, 2020) The global economy, which is sinking due to the worst pandemic of the century, is likely to suffer a decline equal to the Great Depression, yet it will be a one-time shock and the economies are likely to go back to normal, experts told Sputnik.

The spread of COVID-19 has left businesses around the globe counting costs. Governments are introducing restrictions to try to contain the virus, which has already left some 500,000 people infected and over 22,000 dead.

The European Union, which has been declared the new epicenter of the COVID-19 disease, is banning visitors from outside the bloc for 30 days in an unprecedented move to seal its borders. The bloc has recorded some 220,000 confirmed cases, including roughly 12,000 virus-related deaths.

Several countries have announced the closure of universities, schools and childcare centers. Bars, restaurants, cinemas, nightclubs and sports clubs also remain closed down across the bloc, as well as all stores except supermarkets and pharmacies. Medium and small businesses, which were forced to shut down or limit activities, have been hit particularly hard. Even with the support of the government and delays in loan payments, these enterprises will likely endure high costs.

Keir Milburn, a lecturer in Political Economy And Organisation in the University of Leicester, in an interview with Sputnik has predicted a severe contraction of the world economy in 2020.

"Forecasts for the second quarter of 2020 estimate a contraction of between 15 and 35% - this would be a contraction equivalent to the depression of the 1930s," he explained.

The Great Depression, a severe worldwide economic crisis that happened during the 1930s, is considered to have been the longest and most widespread depression of the 20th century. Initially, it began in the United States but then spread to the entire globe.

According to Milburn, it will be still hard to estimate how the economies across the world will respond after the quarantine is lifted.

"It seems likely, however, that this will prove a crisis on an epochal scale," he said.

Heiwai Tang, Professor of Economics at the University of Hong Kong, also predicts a global recession for the economy.

"Global economic recession in 2020. I am expecting a negative 1-2% growth for the global economy, 2% Chinese growth, -1% US growth, and deeper recessions in select EU countries, like Italy," he told Sputnik.

However, he noted that the crisis of 2020 will be "a one-time shock" and forecasts that 2021 will see "a strong recovery."

"Some Asian countries have experienced SARS in 2003. So, the lessons learned will be bigger for the West that didn't have any pandemic in recent history," he said.

SARS (Severe Acute Respiratory Syndrome) was a viral respiratory disease that surfaced in the early 2000s. The outbreak resulted in over 8,000 cases across nearly 30 countries and nearly 800 deaths.

Jozef Konings, a professor in Economics at the University of Liverpool Management school, also believes that the crisis is a "temporary shock that will not last" and world economies will start working as usual in a few months.

"That said, it is likely that GDP will be collapse between 6 and 10 percent. But after this shock the economy will recover again, globally," he told Sputnik, adding that the governments across the globe should provide support to the citizens so that nobody loses their job because of the coronavirus.


While it is still hard to predict which countries and what continents will suffer most from the effects of the coronavirus pandemic, Milburn pointed to Asia's quick response.

"The quick and dramatic response of some Asian countries will likely stand them in good stead," Milburn said.

After weeks of rocketing infection rates from December-February, China has turned the tide on the virus by showing how resolute action can pay dividends. The number of those infected with COVID-19 in the country has remained practically unchanged for weeks.

Tang also noted that Asia seemed to be "relatively more resilient," adding that Europe may suffer more partly due to "a weaker initial start."

"Probably Europe [will suffer most from the crisis] given the slow reaction of governments in some countries, like the UK," Konings also said.

Meanwhile, Mantej Pardesi, an economics lecturer at Maastricht University, believes that both Europe and Asia are likely to be equally affected but the latter may still suffer most.

"Due to the relative imperfectness of markets in Asia to act as catalyst agents against such shocks and the presence of the European Union (and no Asia Union) which creates a more robust (although dysfunctional) economic system, I would believe Asia would face a bigger impact," he said.

In Asia, countries apart from China, South Korea and Japan are due to face "the worst circumstances" since the populations of these nations rely on their own production capability, rather than the welfare system of the countries, he added.

Regarding the United States, Pardesi recalled that Washington recently announced a $2 trillion stimulus package to support the nation, which has seen nearly 70,000 COVID-19 cases and over 1,000 deaths.

"The measures (larger in size than the stimulus package during 2008-09) should hopefully give the much-needed respite to the troubled American population who will see the wheels of American capitalism fall off due to COVID19," he added.


The COVID-19 pandemic now reveals new details about the world economy, in particular those that were previously obscured, Milburn believes.

"A lot of infrastructural and care work is usually obscured but now it becomes visible because if those doing this work are ill then you too can get ill and die. In a pandemic, unless everyone has access to health then no one does," he said.

He noted that widespread social distancing has revealed people's deep interdependence on one another.

"This interdependence has shown how dependent the lives of the wealthy are on the conditions of the vulnerable," he concluded.

He noted that during the pandemic, an asset-backed welfare system in which access to credit is the ultimate guarantee of access to care, has been proven ineffective.

"In a crisis of this scale the latter has proven to be illusory - those assets disappear when you need them most. This has made the state step in to guarantee incomes, health and care. It is likely that the swing away from financialised conceptions of managing personal risk will continue," he said.


Pardesi believes that the COVID-19 pandemic can revolutionize how people perceive the world of the 21st century.

"Not since the Second World War have, we've seen so many countries restricting movement of people across borders. In a hyperglobalized world of today (or let's say before February 2020), labor mobility (between and within countries) is essential to keep the economic machinery running," he told Sputnik.

He says that the crisis will throw light on issues of underemployment and unemployment since people on precarious employment will be the most affected.

"Out of all the other causes, I believe that Covid-19 has the potential to drastically affect both supply and demand side channels of the global economy still depending in large parts on the efficacy of labor," he said.

The crisis is likely to "accelerate the divisions" between jobs across the globe, according to Pardesi.

"We see it now that most of the highly skilled are more likely to work from home and keep their jobs even during the pandemic," he said, drawing an example of universities and schools moving to online platforms. He predicted even "a greater push" for digitalization.

However, the professions of manufacturing, retail, construction and transportation will be the most affected by the crisis, he noted.

"Small business relying on continuous cash flow would find it difficult to operate and monopolization of markets would accelerate. Overall, I do not want to but a realistic picture of the world economy looks dark following the crisis and it will take more time than people think for us to recover," he added.

So far, the data on the rise of unemployment and economic losses across the globe remains alarming. In China, roughly 5 million people lost their jobs in January and February amid the pandemic. In the United States, which is the third COVID-19 affected nation and is feared to be the next epicenter of the virus, a record 3.3 million people have recently filed for unemployment.

According to the report from the International Labor Organization, workers infected with COVID-19 have already lost nearly 30,000 work months. The organization expects overall losses in income to be from $860-3,440 billion.

Your Thoughts and Comments