In just a few weeks, the coronavirus and the containment of millions of people it has caused has almost wiped out the world economy, to the point that economists expect the most severe recession in modern history, perhaps worse than during the Great Depression.
It should be accompanied by a surge in unemployment. The extent of the shock will depend on the remedies infused by governments, central banks and international institutions, and the duration of the health crisis. Update on a G20 emergency – virtual – meeting.
RECESSION OR DEPRESSION?
“The G20 economies will suffer an unprecedented shock during the first part of the year and will contract in 2020 before a rebound in 2021,” predict economists from the rating agency Moody’s.
The Secretary General of the Organization for Economic Cooperation and Development (OECD), Angel Gurria, said he on the BBC on the world economy will suffer “for years”.
The current crisis promises to be more severe than that of 2008 because this time it affects not only the financial system but the entire real economy, with a collapse in production and therefore supply, and also asks, because of millions of people in confinement.
Transport, tourism, distribution are particularly affected, even if some sectors are doing better: pharmacy, industry related to sanitary equipment and products, food or online trade.
G20 countries are expected to collectively experience a 0.5% contraction in their Gross Domestic Product (GDP) this year, according to Moody’s. In the United States, it will be -2% and in the euro zone -2.2%. China is expected to grow 3.3%, a very slow rate for this country, adds the agency.
For the United States, Goldman Sachs forecasts 2020 at -3.8% and Deutsche Bank the worst contraction for the American economy since “at least the second world war”.
In Europe, the German Minister for the Economy spoke of a recession of “at least” 5% in 2020 in Germany and for France, Moody’s forecasts -1.4%, while Nuno Fernandes, professor at IESE Business School, prognosis -2% in 2020, based on a health crisis scenario completed at the end of June.
For the United Kingdom, KPMG sees a slightly more severe drop of 2.6%, but which could reach double if the pandemic lasts until the end of the summer.
In the eurozone, with more protective labor regulations, the firm Capital Economics expects unemployment to jump to 12% by the end of June, “canceling seven years of gains in this area”, even if an upturn should follow in the second half.
In the United Kingdom and the United States, these rates are currently historically low thanks to the boom in precarious jobs in the “gig economy” (odd jobs).
Across the Atlantic, where even long-term employees can easily be sacked, economists predict a dizzying increase in jobless claims: from 1 to 3 million people perhaps this Thursday. James Bullard, president of the St Louis Federal Reserve, even said in an interview with Bloomberg that unemployment could soar to 30% in the coming months.
The coronavirus epidemic hovers a lot of uncertainty about the evolution of prices, between risks of economic depression and deflation if demand collapses sustainably, but with certain inflationary pressures if currencies are devalued, if we attend shortages, etc. Inflation rates are in any case low for the moment and generally below the targets of central banks, particularly in the United Kingdom.
In the UK, Carl Emmerson of the Institute for Fiscal Studies (IFS) told AFP that debt at nearly 90% of GDP is currently high but has reached “almost 260% after the World War II”.
The public account deficit was recently just below 2% as the Conservatives made it their fiscal rule – and it climbed to 10% during the 2008 financial crisis.
Debt and deficits should in any case be the least of the concerns of those in charge at the moment, especially since funding rates are historically low, said Jonathan Portes, professor of economics at King’s College London, interviewed by the AFP. They also seem, from Washington to Berlin, to have for the moment put away all the doctrines of budgetary orthodoxy by announcing stimulus plans worth thousands of billions of dollars.