The International Monetary Fund confirmed today that the global economy is on a downward spiral that will rival the Great Depression, thanks to the COVID-19 pandemic. Economies around the world are expected to lose three percent of their value, this after a global increase in January of 3.3 percent. The world is facing a financial crisis, no doubt. The only question is, how bad will it get?
The IMF’s chief economist is hoping for at least a partial recovery next year. However, even that small victory will only happen if the pandemic is at least partially controlled by the end of 2020.
According to the World Trade Organization, global trade will likely decrease between 13 and 32 percent. The effect will be immediate and affect global economies for years to come. At this time, global trade is at a minimum. The majority of countries are on a mandated lockdown, and for the most part, all but grocery stores and emergency healthcare facilities have ceased to do business. Hotels, restaurants, department stores, and movie theaters are idling and losing money each day. The world has not seen a financial crisis of this magnitude before. There are few precedents to follow. Countries are looking to the IMF for emergency funding. There is $1 trillion available, but that may prove to be a drop in the bucket. Those at the lower economic level will suffer the most. They will only get poorer as they have no jobs to go to, and social inequality will increase.
Europe is expected to be the hardest hit, especially Italy and Spain, where the respective GDPs are anticipated to decrease by 9.1 percent and 8 percent, respectively. The US economy will likely fare only slightly better. Interestingly, China, the original home of this virus, is expected to grow its economy by over 1 percent.
The IMF advises that countries should first concentrate on the health of its citizens before attempting to deal with their economies. Countries need to stop the spread of the virus; then, they need to provide monetary assistance and develop plans to reopen the economies and return to doing business.
In the U.S., the Federal Reserve Bank of St. Louis is anticipating unemployment to reach 30 percent by next quarter due to the lockdowns. The GDP could fall by 50 percent. The bank’s president, James Bullard, expressed the need to replace the $2.5 trillion of lost income to hasten the U.S.’s recovery.
Bullard also emphasized the importance of President Trump and Congress arriving at recovery package agreements that may be on-going. Interest rates are already near zero and could easily fall into negative territory. Last week, the Federal Reserve purchased $272 billion of government debts, but that number may increase. The creation of new government programs is expected to enable small businesses to borrow money and recover from their losses. Bullard believes that aggressive government action is needed for a successful recovery of all U.S. industries. Unemployment will likely hit 15 percent, while the GDP is expected to decrease by 11 percent from the same period last year. For those who lived through the financial crisis of 2008, Goldman Sachs is predicting that the Coronavirus crisis will be four times worse.
For everyone, these are challenging times. We can only hope for a quick and successful resolution.
