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Economic downturn – The worst financial crisis

downturn economic

Due to the new covid 19 pandemic, specialists around the world are starting to fear a huge recession in an economy. The growth of the unemployment rate, the crash of the stock market, the rise of debt levels of all countries, high oil prices and prices for gross domestic product are signs for and economic crisis that will last for two consecutive quarters as many economists predict. The first quarter will be the worst due to the coronavirus pandemic that has lead to job losses and businesses closing, and the second quarter may also be as bad predicting a great recession.

The worst fear of many economists is that this economic downturn will last longer and will be deeper than june 2009 economist recession. In addition, the two consecutive quarters of recession economy will make it harder for businesses to recover. At the moment, the coronavirus pandemic has already made damages across the economy around the globe, as there are over 2 trillion people that lost their jobs and unemployment rates are growing every day in all countries. The economic activity was frozen for over 2 months in most countries, therefore businesses had to suffer, and were forced to fire their employees. At the begging of covid 19 spreading, everyone was talking about an economic downturn that will be more severe than the one that stroke the world in june 2009, but as time passes, specialists are predicting a great recession like never seen before: unemployment rate reaching a very high number as job losses are increasing daily, gross domestic product being hard to find, interest rates getting higher and federal reserve dropping. Not only the United States will be affected by this economic recession but, as world war II, this economic recession will affect the entire globe.

Current Economic Situation

The first quarter of this great depression is near, and the economic crisis can become even deeper as governments decide to reinforce restrictions on their countries and stop current economic business activity again. All measures taken to stop the spread of the virus mean businesses closing and going bankrupt. This coronavirus pandemic is above all public health emergencies and will be the the trigger of the next world economic crisis. The United States has already started to feel the effects of covid 19 in the economic activity, as many big luxury companies have closed their gates, the stock market dropped, the federal reserve has started to shrink, the monetary policy is also affected and the business cycle is nowhere near where it should be.

As long as social distancing is mandatory, businesses cannot return to their normal economic activity and they are forced to cut profits and adapt in order to survive. Moreover, even after this great depression will pass, there will be a new normal, people will keep their distances, will no longer be inclined to eat in restaurants as often as they did before covid 19, they will no longer want to go to crowded event and concert halls so businesses will still have to suffer, if they survive till then. A new economic growth is very hard to see at the moment and no one know what to expect, but that a great recession in economy.

Is economic downturn same as recession?

Recession is defined by economists as two consecutive quarters of declines in quarterly real GDP (gross domestic products). Recession is a significant decline in economic activity spread across the entire economy, that lasts more than just a few months and has a visible drop in GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

While, an economic downturn implies a fall in real GDP and it occurs just before a recession by slowing down the economic growth and creating a gap in it. This means, higher unemployment levels, lower inflation, lower investments, lower consumer spending, rising government borrowing, falling asset prices. Usually, economic downturn are normal in the economic cycle and pass fast, but this time it might turn into a financial crisis.

Are we headed for a recession in 2020?

Everyone is asking this question! Will covid 19 lead the world to e new great recession? The high number of companies shutting down, stock market crashing and interest rate getting higher in every corner of the world are leaving us with just one answer, the coronavirus pandemic will pass eventually, but the economic activity will have to suffer long after the virus is gone. Only in the United States there are lots of companies buried in debt that are already in recession.

After seeing the crash in stocks from march, specialists believe that the next economic recession will more like world war II than the last financial crisis. They believe that the recession from 2009 was nothing compares to the great recession to come.

The current economic situation doesn’t look good at all for developing countries. They have seen investment rush for the exists, leading to currencies plummeting, people paying more for imported goods and fuel and governments threatened by insolvency, while the pandemic threatened to crash the medical systems all over the world. Despite that, investors hope that this economic recession will last for a short period of time, a great recovery being possible by the end of 2020. For the moment, the world economy is on pause but once the virus spread is stopped, people will be able to get back to their lives, jobs, shopping habits and travel and all companies will be able to reopen their gates. Meanwhile, the number of economists to close their door is in growth from small businesses to giants.

The prediction of the following great recession is that many households will have an adversity for risks and will keep their guards up in order to protect their family income in an economy in recession. Due to the fact that some social distancing measures could remain mandatory for an unknown period of time, consumer spending will need more time to recover resulting in limited expansion. People have been through a huge shock and certain behavioral patterns that they have achieved during the pandemic will stay with them for a long period of time, if not forever.

Rising of interest rates, fall of the New York stock exchange and federal reserve are only a few signs of GDP growth, monetary policy changes and a new deep downturn for the economic environment. The number of economists predicting the economy downturn coming is rising daily and the signs for economy growth are nowhere near to be seen. One thing is certain, the great recession will strike the entire world, but it’s effects cannot be foreseen.

Keep a close eye on us for further economy updates, crisis advice and downturn predictions.

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