Relation between Covid-19 and the great recession | Pakistan Today

Relation between Covid-19 and the great recession

  • The governments could stand the crashes no longer

Since the eruption of covid-19, the movement of the global economy slowed down quickly with its features being visible for all to see and believe. After decades, or almost a century, this happened in world which proved very harmful for human life as casualties crossed over 700,000 with the number increasing with every passing moment It has shattered the whole of our daily routine, no one has ever seen anything like it in their lives In the circumstances, we live with utmost fear and uncertainty about the outcome of the current pandemic. It knows no boundary, recognizes no nation– big and small or rich and poor. In another words, it’s a litmus test of our systems body’s immunity, soundness of economy as well as perfection of the global health system. Its stiffness and rigorous of testing made both human life and economy bound to fail on all fronts. At this time, not to talk of poor and developing countries, the economy of G-7and G-20, the nations who guide and control the movement of entire world economy, is shaken.

This situation has been termed as the coronavirus recession, the great shutdown, the great lockdown or the covid-19 recession. Although, its first sign appeared on February 20 with the crash of the stock market, the International Monetary Fund also warned the nations on 14 April to be prepared for the most severe global economic recession followed by extensive lockdowns in coming days. In practice, the pandemic has put more than one-third of the global population under a house-arrest situation or complete lockdown with nominal freedom for purchasing essential goods of daily consumption. As a result of mass halting of people and their economic activities the world data of unemployment increased abruptly and several state-funded unemployment insurance companies are getting unable to keep the proper processes in order. All developed countries registered a growth of about one percent while developing nations’ economy was badly affected by a drop in remittances and prevailing instability in unorganized sectors. As the emerging situation stopped the tourism business, and thus the movements of public and private vehicles on large scale, there was a visible significant decline in demand of oil, followed by a collapse in its price.

In succession, Black Monday-2 came on 16 March when Dow futures collapsed more than 1,000 points. On that very day Asia-Pacific and European stock markets closed down on a record fall of 9.7 percent along with a significant record of decline in other shares. It all was only due to the pandemic and the weighty cut in the oil price. These frequent deep declines in the stock markets due to circumstances beyond governments’ control compelled them to change their fiscal policy and initiate different relief schemes to save the economy from collapse

The occasion did much harm to corporate houses already in economic crisis since 2007-2008. The total corporate debt in eight major countries– China, the USA, Japan, the UK, France, Spain, Italy and Germany– increased from $34 trillion in 2009 to $51 trillion in 2019. And if the current economic situation continues for longer, the corporates of these countries may be forced not to pay the incurred interests to lenders, also failing to refinance or restructuring their loans. In the pre-pandemic phase too, there was enough indication of an economic slowdown in the world market because of manufacturing activities. Industrial output in 2017 was at its peak and signalled a decline in early 2018 for which the International Monetary Fund noted Brexit as well as the China-USA trade war as the primary reasons. The trade war remained from 2018 to early 2020. In the USA wanted to stop unfair trade practices by China. This imbalance in trade had brought a mild recession in US manufacturing industry and as a result other countries were also affected negatively.

The current pandemic ruined the world economy already reeling under the several strains due to circumstances beyond control. It was perhaps the most impactful event since the Spanish flu which took place a Century ago in 1918. The precautions implemented to check the spread of covid-19 have led to severe global economic disruption. As a consequence nationwide lockdowns with maintaining social distancing and compulsory wearing of masks were enforced. It covered about 98.5% of world’s student population. Many governments have restricted unnecessary movement and non-essential travel to and from countries and areas affected by the virus. In this context “Stay at Home” orders issued during the lockdowns have badly affected those who provide in-person services like, retail stores, hotels, restaurants, entertainment venues, museums, and beauty salons, and so on. Unquestionably, all peoples, economists as well as industrialists, consider the pandemic as the single factor responsible for economic recession and prevailing uncertainties in the global economy.

Another sector, which the pandemic impacted most, was oil, where the price fell due to the cut in its global demand. As the movements of people and vehicles, public and private, were restricted to almost zero, there was a sudden and significant cut in oil’s gross demand. To meet the situation, the Organisation of Petroleum Exporting Countries discussed and decided to cut production by 1.5 million barrel per day in a meeting held in Vienna on March 5. But unfortunately, Russia and OPEC failed to agree on the issue of the production cut, and Russia along with Saudi Arabia announced to increase the production on March 7. A day later Saudi Arabia also declared it would sell oil on a discount of $6-$8 per barrel to Asian countries. Although a slowdown of about 30 price in oil price was visible at the start of 2020, it went down a further 30 percent due to differences among oil producing countries. It was the first time since the great recession of 1930-31 that a significant gap was seen in demand and supply.

The general public doesn’t understand the complexities of the share market, but the health of country’s economy is very closely related to its ups and downs. As the global pandemic has affected all aspects of economy a significant crash in share market was imminent. The crash in market took place on the different day and dates such as the Black Monday-1 (9 March), Black Thursday (12 March) and Black Monday-2 (16 March). On these day and dates significant crashes were recorded in different parts of the world. Black Monday-1 proved a disaster for the Dow Jones Industrial Average. After the opening of market on that day, it lost a record of more than 2000 points in a single day, the biggest fall in its intraday trading. Along this the shares of other US companies also registered a decline of 6 to 15 percent about the time. Likewise, a number of Asian markets fell down up to 20 percent from their recent highs. The second crash came in the share market three days later on 12 March, whose effects were felt globally. The most affected countries of the world include Indonesia, Columbia and a host of others.

In succession, Black Monday-2 came on 16 March when Dow futures collapsed more than 1,000 points. On that very day Asia-Pacific and European stock markets closed down on a record fall of 9.7 percent along with a significant record of decline in other shares. It all was only due to the pandemic and the weighty cut in the oil price. These frequent deep declines in the stock markets due to circumstances beyond governments’ control compelled them to change their fiscal policy and initiate different relief schemes to save the economy from collapse.



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