The recent outbreak of the deadly coronavirus has caused panic across the globe and across the financial markets too. Many experts believe that the economic impact of the pandemic would be more significant than the obvious threat that it brings along. The investors are at their wit’s end regarding this widespread anarchy since the current scenario could get worse if recession sets in. Milan, the financial capital of Italy, is almost on the verge of a lockdown.
A drop in oil prices and an escalation of the outbreak in America have led to mayhem. Can all these factors eventually lead to recession yet again? Will the harrowing memories of 2008 come back? Apprehensions are doing the rounds.
What Can Possibly Trigger a Global Recession?
The conditions are deteriorating rapidly. Due to the pandemic, people are under pressure to stay home and avoid traveling. As a result, the demand for restaurant bookings, hotel bookings, and flights have come down unbelievably. Several factories in China had to shut down, and it’s the same story in other countries as well. Reports on disruptions in several industries are cropping up, and it’s terrible for the economy as a whole.
Such an unprecedented situation has compelled the medical protective gear manufacturing companies to explain how the virus has inversely affected their prospects and how it closed all the doors of making profits. The longer this pandemic would sustain, the higher will be the efforts made to survive. Consequently, the effects on the global economy as a whole would be more profound. If you consider the current situation, nothing is in order, and uncertainty about the future is ruling the roost. China is the worst-hit region.
The economists predict tougher times as governments outside the territory of China have come up with severe restrictions. As per Morgan Stanley, the GDP growth globally will come down to around 2.3% before going as high up as 3.1% in the six months to follow. Alarming signs, no doubt!
The Numbers Might Tell the Story
The adverse effects of coronavirus on the world economy won’t be noticeable too soon. Data from February are hardly available to anyone as it was around that time that the virus started spreading its arms beyond Wuhan and gradually beyond China. As a result, the effects it would possibly have on jobs, savings, and spending e at this moment. You might not know the complete picture until the end of this spring or summer. However, stocks went through their worst phase recently since the Great Recession of 2008.
It Might Not Be as Bad as 2008
The good news among all the paranoia is that the recession, in the offing, might not be as bad as the one that hit the world back in the year 2008. The Great Recession crippled the financial sectors and households, too, and they took a lot of time to recover. The crunch that coronavirus has brought around can make way to a speedy recovery once things are within the stride.
As per experts, the shock is going to be a sharp one, but short-lived. Central banks now have a fewer number of arms and ammunition than they used to in 2008. They could have an impact on the pace at which the economy makes its way back to normalcy. Interest rates in Japan and Europe were already taking a hit before coronavirus started to threaten the world economy. The interest rates have come down by half a percentage point, and hence, the US Federal Reserve doesn’t have many options in hand.
The Economy Has a Cushion
No forecaster could predict a recession in 2020. However, the rate of unemployment right now is almost close to the lowest in the last half a century. The momentum that lies underneath can help the world from facing a financial crisis yet again. The households don’t have much debt to repay compared to 2008, and therefore, they have got a buffer if a slowdown happens.
The Fed has already gone ahead and brought the rates down to help the detrimental effects of the coronavirus outbreak. This will help from the impact spiraling down to other sectors. It’s now to see how the authorities in other countries respond to this emergency.