Daccanomics
The Coronavirus is having a profound and serious impact on the global economy and has sent policymakers looking for ways to respond. Economists and experts are already talking about a recession in the second quarter of this year. This coronavirus pandemic is putting an end to an economic expansion worldwide. Many countries are already seeing an economic downturn. But will it cause a global recession? or worse global depression.
Many economists have come around to the view that coronavirus disruptions will trigger a global recession. Some are even suggesting that if we can not contain the virus soon we might even face something disastrous like the great depression which began in 1929. The entire sector of the world economy is at a halt. As millions of people around the world are in lockdown factories are closed and many businesses have shut down. The travel industry has been badly damaged, with airlines cutting flights and tourists canceling business trips and holidays. Governments around the world have introduced travel restrictions to try to contain the virus.
The government in many countries are taking extraordinary steps to keep the economy stable. Central banks in many countries, including Bangladesh, have slashed interest rates. Still, investors fear the spread of the coronavirus will destroy economic growth and that government action may not be enough to stop the decline.
The ongoing COVID-19 outbreak affects China and other developing Asian economies through numerous channels, including a sharp decline in domestic demand, lower tourism and business travel, trade and production linkages, supply disruptions and health effects.
Are we looking at a recession? Or a depression? And what exactly is the difference?
What is a recession?
A recession has traditionally been defined as two consecutive quarters or six straight months of negative economic growth. The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
What is a depression?
There is no certain definition for a “depression”, but when a country is faced with a prolonged economic downturn that is measured in years, rather than quarters – then you can be pretty certain it is experiencing a depression. In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle.
How Coronavirus is causing a recession?
Economies enter a recession after two consecutive quarters of GDP growth. Many economists are suggesting a double-digit decline in GDP growth in many countries. There are many indicators that suggest that we might soon see a global recession. One of the most important signals we can see is in the jobs market. Industries like retail, hotels, restaurants and aerospace business are terminating employees as businesses have stopped. There is a massive increase in unemployment. Business are seeing a downturn in economic activity worldwide. Both services and manufacturing sectors of the economy plunged. Many companies were suffering from a shortage of supply as most it came from china. The Chinese government had to shut down factories due to the coronavirus earlier this year. Right now countries are facing a lack of demand as most of the people are staying inside homes. This lack of demand is reflected in the oil market as the oil prices drop more than 6% to 18 year low. This pandemic is bringing major parts of the economy to a standstill.
But many economic experts believe that it will be easier to overcome this recession and we might see a spike in the economy once this is all over. It is a health crisis and not caused by instability in the financial system, so it will be easier to recover. As there is no fundamental problem with the economy, this economic downturn will be different from others. But if this coronavirus health crisis is prolonged there is a good chance that it might turn into a financial crisis.
