GLOBAL RECESSION 2020
The coronavirus has brought about positive impacts on the environment, the lifestyle of people and has made technologically aware.
The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva stated in the G20 summit of Finance Ministers and Central Bank governors that the outlook of global growth for 2020 is “negative” and “a recession at least as bad as during the global financial crisis or worse”. The IMF also says that the lockdown is going to bring to affect a crisis worse than the 2008 financial crisis – the worst in the hundred years after the Great Depression of 1930s.
The coronavirus has brought about positive impacts on the environment, the lifestyle of people and has made people technologically aware. However, the economic impact of the virus is more negative than positive and we need to look at it globally, the current status of the global economy as well as how it is going to impact the employed and unemployed individuals.
One must differentiate between economic slowdown, depression and recession. Economic slowdown is the decrease in growth rate, which does not stoop to negative, but when compared to the previous growth rates of the economy, it is less. Recession however, implies that the growth rate of the GDP stoops to negative values. Depression is a prolonged recession, i. e., when the growth rate is -10% or less, for three or more years, the situation is called an ‘economic depression’. It is an extreme economic crisis and has occurred only once in the last 150 years of world economy in the year 1929 which went on for more than ten long years and when the GDP growth rate was less than -15%. During the Great Depression of 1929, the unemployment rates in most countries were 25 to 30%. In the financial crisis of 2008, the world GDP growth rate fell only by 1% and yet a financial emergency was called upon. The 2008 Financial Crisis is known as the Great Recession.
Many have compared the Recession today to the 2008 Financial Crisis but it is predicted that the situation will be much worse. For instance, the GDP growth rate in France in the first quarter has been -6%, worst in the French history. The estimated GDP growth rate in Germany in the second quarter will be -10%.
There are some critical differences between the 2008 crisis and the Recession today. Firstly, and most importantly, the situation today is such that people are not working at all due to the global lockdown. In 2008, there was a Recession, banks got shut and many lost their jobs, but on the whole, the economy was running and people were going out to work which today is impossible.
Many companies have tried to make people “work from home” but there are a certain number of industries and sectors like the sports industry, travel and aviation industry, film and entertainment industry, manufacturing plants of even the technological industries, restaurant industry who cannot do work from home, they have to come out but there is no meaning coming out as lockdown have taken away their labourers and these industries coming to a close if no specific relief is granted by the government.
Most companies excepting a few will succumb to losses because of the shutdown. This in turn will lead the company to attempt to save money and to do so, they might have to dismiss most of the employees working at the grassroots level to downsize or curtail salaries of employees.
In a bird’s eye view, this is the picture. For instance, Tesla has curtailed the salary of all their employees by 10%. Elon Musk, CEO of Tesla, is selling his personal properties which he owns in his name. Marriott has reduced the salary of their senior executives by 50% and are dismissing at least 10,000 workers temporarily from jobs. The International Labour Organisation has predicted that 38% of all the employees in the world are under the risk of either a salary cut or a layoff. More than 1 billion workers will be getting a reduced salary as predicted and about 2.7 billion will be directly or indirectly affected by the Recession.
The Recession could prove an apocalypse for the small-scale industries. The larger industries can afford to keep their employees and pay them at least a decreased salary. However, the small businesses which earn on monthly basis will face the real hardship of the recession. They will have to fire their employees and themselves can go into losses. This crisis for the smaller industries is prevalent in India. The migrant workers in India are currently unemployed, homeless and short of food too. Hence, these workers are out on the streets today, protesting asking for their salaries. The companies are also down as there EMIs, Rents, Fixed Expenses with no business or very less business.
The companies which are able to work from home and the education sector are thriving in innovation. All these companies are working on strengthening their technologies and virtual relations, interacting through video conferences and forums. The situation forced by coronavirus is capable of getting a shift in the education and work practices which could be made easily available through online media.
It is believed by economists that companies will speed up the use of automation and that the commercial real estate sector will face a loss once the lockdown ends. The need for a workplace will no more be felt by many companies which have kept functions running smoothly during this period. However, the mental health has seen to be affected negatively along with the productivity of people, which can be a setback for the companies.
Comparing the Global Recession of 2020 to the Financial Crisis of 2008, it has been predicted by the IMF, that “we expect recovery in 2021.” The economists believe that all the previous Recessions seen were due to a formational economic hindrance. However, the Global Recession of 2020 is happening majorly due to the voluntary choice of the individuals to Stay Home. Once the lockdown is exited, people will start working again and the situation will be normal again. In the words of Kristalina Georgieva, “The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.”
The advanced and the developing – both the kinds of economies of the world – have enforced the lockdown themselves and hence it is hoped that they will find a strategy out of the crisis, which will help the people as well as keep the small businesses running. The aim of the governments is that economy is for the people if people what will be the use of economy, if they are alive, the economy can be rebuilt.
The past has it that whenever there has been a Recession, the economies have always bounced back. Therefore, most countries of the world have already released their ‘economic relief packages’ which denotes the amount the country is going to spend for the welfare of the entire population of the country in order to support them. Different countries have released their own economic packages. The USA has meted out 11% of their GDP and $2.3T. Germany has decided to provide 4.9% of their GDP and a total of $189.3B, China $169.7B, Australia $133.5B, India $26.4B.
The world is certainly saturated by a steep economic downturn undoubtedly, but it is hoped that the exit strategy will facilitate the movement up the graph.