Coronavirus pandemic affects the world’s largest economies
Where will the global economy be one year, five years, ten years from now?
In response to the health crisis, governments around the world have implemented lockdowns and social distancing measures to limit the spreading of the coronavirus. Yet, in doing so, economies have stalled, supply chains are being disrupted, and millions of people face unemployment.
According to IMF’s (International Monetary and Financial Committee) chief director, Kristalina Georgieva, we have now entered a global “recession as bad or worse than in 2009.”
As the virus continues to mutate and evolve, predicting the path for the world’s economies has become almost impossible. Pressing questions include:
- Whether the shock to the economy will have permanent growth rate damage?
- Will economies be able to recover?
- What must governments do to rebound?
Here, we will address the effects of the coronavirus outbreak on the world’s largest economies and their future economic outlook.
How has the coronavirus affected the UK economy?
The coronavirus is rampant throughout Britain. UK Prime Minister Boris Johnson, introduced a nationwide lockdown on March 23rd to fight the coronavirus pandemic.
The measures are some of the most draconian the UK has experienced to date.
A stay-at-home order is in force, non-essential businesses have closed temporarily, and gatherings of more than two people are currently prohibited.
The Centre for Economics and Business Research (CEBR) said that this has led to rising unemployment levels, dependency on benefits and increased government borrowing. Businesses in production, sales and tourism are the most severely affected by the lockdown, and significant declines are expected over the next year.
Chancellor of the Exchequer Rishi Sunak has provided substantial amounts of fiscal stimulus to prevent the UK economy from entering a sharp recession. Still, CEBR has said the government would have to go further based on the coronavirus’s current trajectory; recovery could take until 2030 without more financial support.
Future of the UK economy after coronavirus
The UK economy forecast in 2020 is bleak, and Britain is facing its deepest recession since the financial crisis. Economic growth is expected to slow dramatically amid disruption to normal order due to the impact of the coronavirus.
According to the CEBR, the coronavirus could cut the UK’s economic output by 15% and GDP growth is forecast to fall between -3% and -7%.
The UK economy will likely go under some form of restructuring to manage the aftermath left by the coronavirus. The CEBR suggested that a cut in VAT would deliver a sharp bounceback in 2020 by encouraging consumer spending.
PwC chief economist John Hawksworth also said that depending on how long the outbreak lasts; the plausible scenario is UK growth could “rebound in 2021 and beyond.”
How has the coronavirus affected the US economy?
The United States is the world’s largest economy and data collected by the IMF shows that the US makes up 22.32% of global GDP.
However, new studies show that the US economy will suffer a sharp collapse in 2020 due to Covid-19. Goldman Sachs predicts that the US will shrink a staggering 34% in the second quarter, more than three times the biggest plunge in history.
In response to the threat posed by the virus, US President Donald Trump passed a USD 2 trillion stimulus which is more than Congress provides for the US federal budget in a single year. Central banks have slashed interest rates, and the US Federal Reserve pledged to purchase US treasury bonds in unlimited quantities.
Currently, government spending is the prop holding up the US economy, but it also means that the country is racking up debt. The US dollar has failed to exert its usual dominance during times of crisis, and financial markets are tumbling as a result.
The United States growth model flourishes so long as there is little unemployment, so when markets freeze the growth model collapses along with the economy.
Future of the US economy after coronavirus
The US economy 2020 predictions remain bleak as the disease proliferates and an antidote lingers in question.
Goldman Sachs warned unemployment could rise to 15% in the US and that the manufacturing industry is likely to tumble. Analysts also expect the Institute for Supply Management index to dip below the 50% cutoff mark and into recessionary territory.
The US has overtaken China and according to Worldometer, has the most coronavirus cases in the world at 188,639 on April 1st. The country is nowhere near the peak of the virus and is likely to see further deaths which will call for stricter measures.
Stricter measures will have a severe economic impact by stifling economic activity. Further stimulus is expected, but there is a vast uncertainty about when the economy will start to recover.
How has the coronavirus affected the EU’s economy?
Europe’s economy was expected to have a strong year in 2020 and factory production within the Eurozone rose significantly in January.
A few months later, and Europe is at the centre of the epidemic.
The coronavirus has delivered a major economic shock to EU countries and economic activity across the continent has come to a halt. Italy, Spain, Germany and France are some of the worst affected countries in the world, and the European Commission has taken strong measures to mitigate the socio-economic impact.
Aside from financial aid, unprecedented actions have been taken to alleviate the effects of the crisis. The European Central Bank launched a EUR 750 billion Pandemic Emergency Purchase Programme (PEPP) of bond purchases from Eurozone governments and corporations as an intervention.
However, large parts of the European economy – which is in an increasingly fragile state – have been shut down, which has restricted industry activity.
Future of the European Union’s economy after coronavirus
The EU Commission expects a deeper recession than 2009 due to the economic slump caused by the coronavirus.
Analysts expect Eurozone to contract by 3.4% this year, while Spain and France have a more severe prognosis.
Spain, which was projected to show the highest growth in 2020, is now forecast to recess by 4%. While Italy’s Minister of Economy Roberto Gualtieri confirmed that a 6% fall in Italy’s gross domestic product was realistic due to the devastating impact of the coronavirus.
The EU budget will now have to be adapted to the crisis as all resources and initiatives must be explored to prevent long-lasting damage to the EU economy.
How has the coronavirus affected China’s economy?
China has experienced exponential growth over the last few years and has a large manufacturing and exports base. According to the IMF, China makes up 15.27% of global GDP.
Although China’s economy collapsed following a lengthy lockdown, the World Bank has said their latest data offers a glimmer of hope. On Tuesday, factory activity showed a significant rebound in March compared to February, and China’s official Purchasing Managers’ Index (PMI) rose to 52 this month after hitting a record low of 35.7 in February.
However, China did experience significant declines in other sectors. According to the National Bureau of Statistics of China, retail sales, investment in fixed assets and the value of exports plummeted.
Unemployment also rose by 6.2%, and a surge in poverty is likely to follow due to lost incomes and illness.
Future of China’s economy after coronavirus
Tuesday’s economic data release suggests that the Chinese economy could make a V-shaped recovery after the coronavirus.
S&P Global Ratings have forecasted China’s economic growth at 2.9% in 2020 due to the country’s continued focus on financial stability. Other metrics are pointing towards a dire economic outlook and have stated that the Lunar New Year distorted data.
The World Health Organisation (WHO) has also predicted that China will experience a second peak in coronavirus cases. Another spike would cause further harm to China’s economy as stricter measures would drive economic activity down once more.