What seemed to be a temporary slowdown in economic activity, followed by hopes of a V-shape recovery in developed economies, slowly turns into a slow and uneven road to economic recovery.
The world threw everything it had to fight the coronavirus pandemic, at the cost of employment, businesses, and recession.
Yesterday market participants found out that the US economy peaked in February 2020 and entered a recession in March this year. It comes at no surprise, but now it is official – the world’s largest economy is in recession, albeit the stock market erased all its losses for the year.
The rest of the world is not doing great, either. Signs that this is more than just an economic downturn appears at the horizon. BP (British Petroleum) announced the other days that it would let go of 15,000 of its employees. Other companies around the world, from all categories, small, medium, big, are doing the same.
May’s jobs report in the United States revealed mixed data. While the job creation was the highest on record, it contrasts with the rise in unemployment claims. The 19.6 million job losses created by the coronavirus pandemic is more than twice the damage created by the 2008-2009 financial crisis. It took the world years to recover then – how long will it take this time?
What the World’s Economies Are Facing
Large fiscal deficits appear to be on the horizon. Most governments in the developed world have stepped up to the plate and eased the conditions in the fiscal space. Global credit creation and money supply growth have seen a strong push as a result of the pandemic.
Yet the economic news so far was much worse than anticipated. Yes, some economic data came better than expected, but only due to some economies easing the lockdown measures.
For an accurate picture, we will have to wait and see how the world’s economic fares with no restrictions, and then compare the actual with the previous data. It is the only way to assess the real impact of the coronavirus crisis.
Inflation is unlikely to be a problem moving forward. Despite large monetary and fiscal policy responses, the consumer has a hard time spending the money widely available to borrow. However businesses are afraid to borrow until they have a clearer vision of what is to come next.
Should the world see a second wave of infections, the road to economic recovery will take even longer to travel.