Pandemic effect: why the global economic downturn due to coronavirus may be worse than the 2008 crisis

3/26/2020

The head of the World Trade Organization predicts that the global economic slowdown caused by the coronavirus may be larger than the 2008 crisis. A pandemic and massive closure of borders provoked a decrease in trade and passenger traffic, as well as weakened business activity in most countries. As a result, the collapse of world GDP may exceed 4% and become the largest in 60 years. Analysts estimate the total financial losses from the consequences of the infection at $ 5 trillion. The threat of recession has already been recognized in the United States. At the same time, experts fear that, as in 2008, a large-scale economic crisis may again begin with the American mortgage market.


In 2020, the recession of the world economy as a result of the effects of coronavirus may be worse than the financial crisis of 2008. This was stated by the Director General of the World Trade Organization (WTO) Roberto Azevedo.

“A pandemic will undoubtedly have a very serious impact on the economy, trade and, consequently, on jobs and human well-being. Recent forecasts predict a recession and job loss worse than during the global financial crisis 12 years ago, ”Azevedo emphasized.

A similar assessment was previously voiced by the head of the International Monetary Fund (IMF) Kristalina Georgieva. According to her, from the beginning of the spread of the disease, global investors withdrew about $ 83 billion from emerging markets. Capital outflows have become the largest for the entire time of observation.

According to the forecast of the Institute of International Finance (IIF), in 2020 the volume of world GDP can immediately decline by 4.1%. According to World Bank statistics, such a recession in the global economy risks becoming the largest in the past 59 years. For comparison, during the global financial crisis, the decline was only 1.68%.

“The crisis of 2008 was not accompanied by the destruction of technological and logistics chains around the world, did not create a situation where production stops and borders between countries are closed. In addition, the volume of world debt in 2008 was not as huge as it is now. Today, the amount is almost three times the volume of the world economy, ”said Pavel Sigal, First Vice President of the All-Russian public organization of small and medium-sized enterprises“ Support of Russia ”, RT.

According to official data from the World Health Organization (WHO), the total number of coronavirus infected in the world exceeds 416 thousand, of which more than 18 thousand died. Most infected were registered in China (about 82 thousand), Italy (69.1 thousand), USA (about 52 thousand), Spain (39.6 thousand), Germany (31.5 thousand), Iran ( 27 thousand) and France (22 thousand).

The spread of the disease has already provoked a massive reduction in trade and passenger traffic in the world. As previously estimated by the UN Conference on Trade and Development (UNCTAD), due to the effects of coronavirus in 2020, the global economy could lose up to $ 2 trillion. However, according to the assessment of RT analysts surveyed, the total amount will be several times higher.

“Only the world tourism industry by the end of the year can lose about $ 1 trillion and lose 50 million jobs. At the same time, about 60 sectors of the economy are somehow tied to tourism. As a result, the total global losses of the global economy may exceed $ 5 trillion. It is expected that global trade can be halved, and unemployment can grow by 30-50%, ”said Pavel Sigal.

By old memory

According to the IIF, in 2020 the GDP of developing countries can drop by 3.1%, and that of developed countries by 4.8%. In this case, the United States and Europe risk the most serious losses, according to the organization. So, analysts predict a decrease in US GDP by 4.9%, and the eurozone - by 5.9%.

“At the moment, the most vulnerable countries will be those with the largest number of infected. In addition, the United States is at risk because, unlike other countries, they are much more dependent on domestic consumption. Plus, in the United States there were already difficulties with corporate debt even before the whole history of coronavirus, ”said Arseniy Dadashev, director of the Academy of Financial and Investment Management, in a conversation with RT.

The threat of economic recession has already been recognized in Washington. So, on March 26, Jerome Powell, the head of the US Federal Reserve System (an analogue of the central bank), made the possibility of an economic recession in the country. Earlier, similar statements were made by the largest banks in the country.

“To the internal problems due to the virus, the negative impact of a global pandemic and a decrease in business activity is being added. For example, the leading American financial companies - Goldman Sachs, JP Morgan, Morgan Stanley - forecast a decrease in US GDP in the I quarter by 6%, and in the II quarter - even by 24-30%. Unemployment in the country, according to the Minister of Finance Stephen Mnuchin, can exceed 20%, which is twice as much as during the peak of the 2008 crisis, ”said Mark Goikhman, chief analyst of TeleTrade, RT.

According to the latest data from the US Department of Labor, for the week ending March 21, the number of initial applications for unemployment benefits in the country jumped almost 12 times - up to 3.28 million. The value was the highest in the entire history of observations.

As a senior analyst at BCS Premier Sergey Suverov explained in an interview with RT, a sharp increase in unemployment will reduce the ability of many borrowers to pay on loans, especially housing. Against this background, experts do not exclude the possibility that, as in 2008, a large-scale economic crisis may again begin with the mortgage market.

The words of specialists are confirmed by the official statistics of the Association of Mortgage Banks (MBA) of the USA. According to the organization, for the week ending March 20, the number of mortgage applications in the country fell by 29% - the largest drop since 2009.

Source: russiart