Grave global economic crisis or just another slowdown?

Everyone is worried about the recession hitting the global economy due to the Coronavirus pandemic. All international organizations are predicting a slowdown in the global GDP and millions of job losses in every sector. ABD has recently announced that due to Coronavirus, world growth would be slow down by 0.1%-0.4% (US $77 ā€“ US$ 347 Billion). Economic growth in developing Asia would likely to be cut down by 1.7 %. China and India would grow at a rate of 2.3 % and 4 %, at least 2% less than the previous prediction.

      Many are blaming the current economic system, which is very sensitive to the small economic turmoil in any part of the world, the political leadership of the world and others are blaming specific countries for the current crisis. People are worried about their future due to job loss, especially in sectors such as restaurants, hotels, gyms, travel manufacturing, warehousing and transportation in the US and manufacturing, construction and unorganized sectors in developing countries like India.

         If you have read the above paragraphs, you must be thinking that everyone is aware of the slowing down of the world economy but the question is how it would recover and how fast. Most of the International organizations are saying that the world economy would normalize in 2021-22, subject to total control of COVID-19 by the end of this year.

          To dissuade your worry about the future, a comparison between The Great Recession (December 2007- June 2019) and the current crisis on three main economic indicators have been prepared. One important point to be kept in mind, while considering the comparison is that during 2007-09, many factors (Excessive credit expansion without considering the risk by the banks, excessive borrowing by the consumer and corporations, non-regulation of shadow banking) combined together to brought recession but the current crisis is more due to coronavirus spread. It does not mean that other factors did not affect the current crisis but their impact is relatively less. World trade has increased by 26 percentage since 2008, which means the world economy has recovered handsomely after the recession. 

        Another factor is governments and individual including you have endured the great recession and knows that economy recovers speedily if the administration takes correct decisions on time. The stock market around the world is in red currently but is much more stable in comparison to their status during the great recession. Another important point is other countries prepared themselves for the outbreak of COVID-19 since its appearance in China. 

UNEMPLOYMENT RATE


         US Official data on unemployment shows that the current rate in the US is 3.7%. Although no official data is available on unemployment prediction, some unofficial data suggests that it is likely to reach 10% by July 2020. On looking at the graph below you can see that unemployment increased sharply in 2009-2010 but start falling after to reach the lowest in 2019. In 2006, the unemployment rate was 4.6, nearly 1% higher than the current unemployment rate which shows that unemployment may rise but can be controlled more easily than before.

GDP 

With the onset of economic slowdown, Government to stimulate growth rate and fasten economic activities brings out stimulus package and special package to high job-generating sectors such as construction and manufacturing. All the major economies of the world have already allotted trillions of US dollars to absorb the shock generated by COVID-19. The graph below shows that the GDP of the US recovered sharply after the slump in the year 2009-10. With the proactive steps taken by the government currently, it is highly unlikely that such a huge slump would come during the current crises.

INFLATION

Except in 2007, inflation in the US had remained under 3% even after the great recession. After a job loss, people cut their discretionary expenditures to adjust according to the low paid jobs and unemployment benefits. With the inflation in control and measure initiated by the central banks to keep inflation in check, the current recession may hurt unemployed less.   


       Prepare yourself for slow down but do not over worry, things will eventually get corrected sooner than later. All the above discussed indicator suggest that the economic situation is not so gloomy as represented by the financial newspapers and media.

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