Covid-19: How the Outbreak is Leading to a Global Recession?

The spread of novel coronavirus, Covid-19, has reached across more than 150 countries worldwide. While the outbreak started from China, it has now spread across all over the world, putting the global economy into a severe recession. Earlier this month, the global financial market hit strongly when the disease spread to Europe and the Middle East, fueling fears of a global pandemic. The virus spread has caused a swift slowdown in economic activity across the world. Now the crisis has been priced so insistently across a wide range of asset classes.

With the coronavirus outbreak, Airlines globally have slashed flights to limit travel in order to contain the spread of the disease. Restaurants and bars have scaled back service or shut down altogether. Since the outbreak has already pushed economies to the edge, it now seems almost inevitable that Australia will be undergone a recession for the first time in 29 years.

On the other hand, in the United States, as Congress pours over a multitrillion-dollar coronavirus rescue package, some analysts are counseling that the country could be facing a prolonged depression despite the kind of short recession and quick bounce back that President Donald Trump and his top aides anticipate.

A decline in GDP and Job Losses

Industry analysts predict that there will be massive job losses and declines in economic activity by as much as 50 percent annualized decline in the second quarter of this year. Economists at Morgan Stanley this week expect a 30.1 percent annualized decline in the gross domestic product (GDP) in the second quarter, the worst quarterly performance in 74 years. The firm’s estimates indicate that the virus heightens in April and May before growth starts to recuperate. However, if the peak comes later and economic disruption continues in the second half of the year, economists consider, the growth in the U.S. for even the entire year will be down to levels last seen in the early 1930s.

As economists foresee the major decline in the U.S. GDP in the second quarter of this year, some are expecting an economic recession as the coronavirus pandemic unfolds and putting devastating effects on the economy.

The Cornavirus-led Recession

The novel coronavirus outbreak has already led the global economy to tailspin as almost everything, from airlines, manufacturing and restaurants to travel, stock market and sports, has ground to halt. The last economic recession has seen in the 2008 financial crisis. The economic recession is generally defined as two consecutive quarters of negative GDP growth.

According to the National Bureau of Economic Research, a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. Thus, there is no doubt that financial markets now ascribe significant disruptive potential to Covid-19. As market sentiment can be misleading, recessionary risk will be real. Also, the vulnerability of major economies, including the U.S., will rise as growth will be slowed.