In just a year, COVID-19 has quickly traveled around the world. Countries have closed their borders, healthcare services are close to collapse, large regions are in quarantine for the second or third time and millions of people are self-isolating at home. Yet, another challenge seems to be on the way: a global economic recession. Can we prepare for it or… even to prevent it? Let’s see what experts have to say about this.
Will a recession happen and, if so, what should countries do about it now to protect themselves?
“The COVID-19-induced lockdowns have resulted in increased unemployment as industries close and consumer demand decreases. In addition, the spread of its new strains appears to be constraining the opening up of economies. A new series of managed lockdowns may adversely affect events in 2021. Notwithstanding the effect of the pandemic, a continued recession is not inevitable. The global economy is projected to expand by around 5% in 2021. However, the expectation is subject to a) the effective and timely implementation of COVID-19 vaccines; b) government financial support to selected sectors of the economy and c) the equitable distribution of the vaccines to all countries, especially to developing nations.”
“COVID-19 took the world by surprise, emerging from Wuhan in December, 2019. By the end of March, 2020, the world was reeling under its weight. Shutdown of borders, overstretched and inadequate healthcare, quarantines, and self-isolations resulted in unfavorable economic activities. Macroeconomic indicators like unemployment, businesses shutting down, Gross Domestic Product and Consumer Price Index have pointed to a significant decline in economic activities.”
“Compared to other continents, Latin America suffered some of the highest fatality rates and one of the most vertiginous recessions in 2020. In order to endure this situation and help to get economic activity back, the immediate response is the implementation of vaccines. This effort will take place in some countries until the third quarter of the year. Meanwhile, borders will remain closed in many countries until at least May 2021. Regarding the financial sector, it’s necessary to consolidate fiscal measures and loan conditions to protect those companies and individuals affected. Governments should encourage private investment and generate more public spending to reactivate the economy and offer low-interest loans, debt refinancing, and public works to generate jobs. While conditions stabilize, we should analyze the actions that help us boost the economy, for example, strengthening merchandise exports or tourism, according to the strengths of each country and/or region.”
How might this recession be different from previous ones?
“The underlying cause of the previous recession was the result of financial circumstances whereas the current economic slowdown is due to external factors. It is more like a natural disaster. Economic progress is probable in the second half of the year when countries will have vaccinated a significant proportion of their population.”
“Yes, the global recession is looming. This will be different from those in the past in that it is not the direct result of economic factors interplaying, but health issues inhibiting regular human activities. This has led to restricted normal economic activities. The longer it lingers, the more difficult it will be to address because more damage will be done to economic structures. Governments should adopt measures to reduce its spread by enforcing adherence to COVID-19 protocols. With the development of vaccines, all citizens should be immunized. Poorer nations should seek assistance from allied developed countries in procuring vaccines and stimulus packages should be offered to minimize the economic effects as this will keep spending at reasonable economic levels.”
“In the recessions of the 1980s and 1990s there was some ability to predict the duration of the crisis, as they were policy-driven. In the 1990s, the crises occurred fairly quickly and policies could be put in place as soon as possible to help the economy recover. The COVID-19 recession is different in that we cannot predict the restart phase nor its duration. Since we can only partially reopen the economy, we are likely to have several periods of tightening, the recovery will not be continuous which will slow it down. Unlike previous recessions, this will limit our ability to fully reuse resources such as human capital. The pandemic has changed our lifestyles, so many sectors have been reduced the most such as the use of public transportation, attendance at restaurants, concerts, shows, travel, and other recreational activities. This will affect how the economy works and the financial sustainability of countries that rely heavily on the income generated by these sectors. The recovery will be unsymmetrical, governments will need to plan and create policies to boost the most affected sectors.”
How long will a potential recession last and how can things get back to normal?
“The recovery may be different in various sectors and countries. Intermittent lockdowns and border closures may impact on supply lines and result in further hunger in developing countries. International cooperation is needed to ensure reliable supply chains and to keep trade routes open.”
“Research has shown recessions last between 6 to 16 months. Depending on how soon COVID-19 is contained, recovery may take about 24 months and things may return to normal when governments make conscious efforts to restore all economic activities to pre COVID-19 levels.”
“In 2020, the world’s production contracted more than three times than it did during the 2009 global financial crisis. The Great Recession was followed by about eight years of half-speed annual growth. Due to the strict and prolonged lockdown measures that were imposed in most of the world, the economic recovery in 2021 will hardly counteract the losses sustained in 2020. Talking about the COVID-19 recession, economic conditions are still uncertain since they are closely tied to the pandemic’s curve. Being optimistic, I think the recovery could take place in the medium term with some effects that can already be perceived, like the loss of small businesses and human capital, permanent teleworking, acceleration of digital transformation, and decreased competition in some sectors. Unfortunately, the recovery in the poorest countries will be achieved in the long term due to the lack of resources. For this reason, the impact on the world economy is disproportionate according to the economic potential of each country.”
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