Ensuing recession and major economic downturns

Rassiq Aziz Kabir | Friday, 10 July 2020

Although fundamentally being considered as a global health crisis, the Coronavirus Pandemic is supposed to lead towards a massive economic downturn which according to many experts can overshadow most of the recessions that occurred in the global economy since "The Great Depression".

Economists in general believe that this recession will be unlike any other in the modern economy due to the fact that it will be induced by a global health crisis rather than an unhealthy economy. It is believed that the world economy has already entered a recession because as per the classical concept of recession, an economy is said to be in recession if it experiences downturns over two consecutive quarters in a year and already the first quarter of 2020 which ranged from January to March as a whole has been quite detrimental for the global economy and the next quarters of the year of which no economic information has been available yet are expected to face the adversity as well.

Almost a third of the population of the world has been placed under lockdown which has impacted the economy as a whole as unemployment has been record high in most of the countries of the world. British Economy has sunk by 2.0 per cent from January to March according to The Guardian and in April alone it dwindled by 20.4 per cent. The biggest decline of GDP in the US economy throughout a quarter was 10 per cent in 1950 and it is estimated that the decline will be well over 10 per cent in the quarter following from April to June. This recession following the pandemic is putting an end to the longest standing economic expansion and unemployment that persisted in the United States of America. IMF predicts that almost all of the global economies will be massively affected by the Pandemic which is quite unprecedented because in the past most of the recessions happened to be quite region specific. Bangladesh itself is likely to go through a massive downturn and already a few of the signs have been quite evident. Bangladesh has a huge reliance on remittance sent by workers living and working primarily in the Middle East and Southeast Asian countries like Malaysia and Singapore and to a lesser extent in Europe and North America.

As of last year, remittance represented about 7.0 per cent of our GDP. But as most of the countries where the Bangladeshi workers are currently working have undertaken strict lockdown measures, the remittance is expected to fall to 14 billion dollars this year which is around a 25 per cent decrease from the previous year. This is far from the only crisis that the economy of Bangladesh is facing at this moment. Bangladesh has a huge number of people living below the poverty line which is as high as 53.4 million as per BRAC and the growing GDP in the recent few years actually helped a lot of those people to move out of poverty. But as the Covid-19 crisis has made it quite impossible for the economy to grow, it's been a really hard time for people of this very socio-economic background. People having blue collar jobs are suffering the most throughout the world and the signs of an improving economy are very low. Economists have not ruled out the possibility of a depression if this very situation persists for a long time. Many economists have predicted the economic condition in the future to be as bad as the time of the great depression if not worse. The unemployment during the great depression hovered around 25 per cent in case of most of the countries and it is predicted that this time it will be even worse as the effects are quite self evident in a lot of countries. The global economy has not seen any major recession in this decade, the very last one was the recession caused by the global housing crisis during 2008-2009 but this recession has already been more devastating compared to that one. In the recession of 2009,the peak rate of unemployment that it reached was 10 per cent which was in the month of October, whereas the unemployment rate for this year's April has already been 14.7 per cent in the USA. Again, when it comes to the stock market, the highest per cent of stock value that the market lost was 40 per cent, it has already been 14 per cent in this year's February and is estimated to cross the 40 per cent range very soon. Other than this, the 2008-09 crisis was very specific to some countries of the world and didn't really have an impact on a lot of developing economies. Even a lot of developed economies like Australia didn't have to face the recession. Although the economic growth was quite slow in those countries, it never led to a downturn. But the current situation is entirely different as we can see that almost all the countries in the world have been badly affected by the pandemic. Due to the fact that it hasn't been region specific, it is supposed to wield its influence throughout the world.

The global economy is moving towards an imminent collapse and the recovery will not be easy. Many policies have been proposed by economists for a recovery but it is almost unanimously believed that the impact will be quite long-standing, hence the recovery will take a bit of time. But there still is some room for hope, as China, where the inception of the virus took place, has already started opening its factories after controlling the whole scenario to some extent. Other than this, the US stock market has experienced more growth than decline in the past few weeks which is a very positive phenomenon in the face of this recession. Scientists are working on the vaccine for Covid-19 and it has already shown positive results when applied to pigs. It is estimated that if the vaccines are successful on human beings, then the whole crisis would be tackled which will bring the economy back on track. Hence, the only hope that remains for an economic recovery is an efficient and effective handling of the whole Covid-19 crisis.

Rassiq Aziz Kabir is a student of Economics at the University of Dhaka