Recession due to COVID-19

Honestly speaking, we were all caught unawares by this pandemic. No one expected it to leave China, let alone get to America. Well, here it is.

We are now staring down the barrel of the gun that is an economic recession. The many measures put in place to put a stop to the aggressive pandemic are the main reason for the contraction of global economies.

With the majority of the world’s population locked down, there has been a massive drop in spending. Coupled with the closing down of world economies, we are now smacked in the middle of a recession that no one saw coming.

The World Bank predicts a contraction in the world economy by as much as 5.2%. This will herald tough economic times never experienced since the Second World War. Let’s look at some of the reasons why COVID-19 has plunged the world into a recession.

Source: World Economic Forum

What Do We Mean by A Recession?

A recession refers to a certain period of a business cycle when there is a general reduction in economic activity. They mainly occur when there is a drastic and widespread reduction in spending.  The economy contracts, supply diminishes, and profits plummet. Reducing supply is usually directly followed by firms laying off workers.

Recessions are almost always a result of disasters of global magnitudes, such as world wars. From this perspective, we are restricting ourselves to the one caused by the COVID-19 pandemic.


How COVID-19 Has Caused a Global Economic Recession

At the onset of February 2020, you probably were still optimistic this was the year. For most people, the beginning of the year is characterized by widespread optimism of better times ahead. You weren’t alone seeing that the International Monetary Fund had in January forecast a 3.3% economic growth for 2020. So how has COVID-19 impacted the global economy and led to a recession?


  • COVID-19 Prevention Measures

The measures put in place to combat the scourge are among the main reasons we are grappling with an economic recession. Social distancing, coupled with the lock down measures having a firm hand on business activity. Businesses are the lifeblood of most economies, and without people to consume goods and offer services, they are practically doomed.

Small businesses have been on the receiving end of this recession. Though small, these businesses’ role in the growth of the economy cannot be overlooked as they provide employment to millions.

  • Unemployment

In April, the United Nations forecast the wiping out of 6.7% of global working hours in the 2nd quarter of 2020. That would be close to 200 million workers losing their jobs to the COVID-19 recession.

The number of unemployed Americans soared by 14 million across all working groups. This is a rate higher than that of the Great Depression, with over 20 million Americans on unemployment benefits. This was fueled by COVID-19, creating a hostile economic environment for employers leading to massive layoffs. Employers can’t afford to have workers if the economy isn’t doing that well.

In the US, unemployment hasn’t been kind to people with less education and young adults. Young workers mostly work in the service industries, which have been hard hit by the pandemic shutdown. So severe has unemployment been that the US government decided to ease restrictions for employment to pick up.


  • Disruption in the Supply Chain

As the virus hit China, experts were already pondering the effects on the supply chain. Companies scrambled to put in place mitigation measures for the anticipated disruption in the supply of goods sourced from the Asian country.

Although, at times, resilient, the global supply chain has been hard-hit by the virus and the measures designed to contain it. Countries have rushed to lock down their borders and let in only essential goods. The steps that have been put in place make it a nightmare before supplies can get to another country. As a result, many businesses’ profits have plateaued.


  • Market Crashes

The pandemic has led to a sharp downturn in manufacturing activity that is responsible for global market crashes. The fact that the pandemic came at a time when the global economy was experiencing a slowdown further made the situation worse.

Oil prices came crashing down due to a drastic reduction in supply. With most of the world population in lock down, no one is using their cars to move around. Gas is the least of someone’s concern when they are protecting themselves from a pandemic.


What Are the Recovery Prospects?

Prospects of a vaccine at the moment look bleak due to the novelty of the virus. Health experts and researchers predict that the virus will continue wreaking havoc for a few more years. That is until a vaccine is found.

Experts argue that recovery will be slow since this is a crisis never seen before. However, effects of the recession can be mitigated by the intervention of governments to protect economies and businesses. If the economy is to avoid a battering, global governments will have to step in.

It is, therefore, unclear how long the recession will be. But as we can tell from before, all recessions do come to an end. What is apparent is that to get out of the woods, all countries pull all stops to control or stop the virus. That will involve mass testing and the quarantining of infected people.  Recovery will be dependent on the prevention of future outbreaks.

Only after that will there be real prospects of life getting back to normalcy, and the recession ends.


In a Nutshell

Recession due to COVID-19 has changed life as we know it. It will need all countries across the world to pull in the same direction to beat the virus. How countries deal with COVID-19 will have a direct effect on how fast the global economy recovers.


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