GREAT DEPRESSION 2.0 : COVID-19 CRISIS, INDIA AND THE WORLD ECONOMY

Rifa Deka

Diagnosing on the basis of current symptoms, we don’t really need a degree in economics to predict what’s coming. A global recession is inevitable and this time it is going to be worse than ever before. The novel coronavirus has killed over 400 people and affected over 12,000 people in India alone. Over 10,000 people have lost their lives in just the last 24 hours with over 20 lakh COVID-19 positive cases, taking overall death toll up to well over 1.3 lakh across the globe.

With half of the world’s population locked down in their own homes and with restrictions on movement, businesses and more or less everything, the pace of the global supply chain has turned sluggish. Thanks to the Wuhan virus’s butterfly effect, manufacturing had to be brought to a standstill to prevent the spread of the virus in the communist country.

The People’s Republic of China, that also happens to control 1/3rd of the world’s supply of both finished and unfinished commodities, stopped manufacturing goods which led to a sharp decline in the supply of goods; further leading to a decline in the sale, a sharp fall in revenue generated, ultimately resulting in worldwide lay-offs. The entire sequence can be seen in action across the globe right now because today, we live in a world so connected, anything happening in any part of the world affects us all.

If we look back in time and look at the Great Depression which literally was the worst economic downturn in history, it sent Wall Street into a panic state wiping out millions of investors. About 15 million Americans had lost their jobs and half of America’s banks had bailed out. This year International Monetary Fund (IMF) has predicted the worst downturn since the Great depression, issuing a stark warning about the economic toll of the Coronavirus pandemic. The economic output of nations is collapsing at an unprecedented pace and the international organization also suggests that this crisis could reverse our gains from globalization earned over decades!

Even in 2001, the world saw a rapid drop in stock market prices and the 9/11 attacks had a big role to play in slowing down of economies in various parts of the world with almost a doubled unemployment rate across the globe.

The last time, we witnessed a global financial crisis which began around December of 2007 but the markets actually began to crash around September of 2008 and it wasn’t until March of 2009 that world economy hit rock bottom. The 2008- 09 period of the financial crisis was a result of a massive flaw in handling finances on a global scale but this time, it is different and unlike anything we’ve ever seen before. It is extreme and the world is in a state of panic. During this 2008 financial crisis, people lost jobs, companies bailed out and the economy went crashing down.  Stock markets had dropped by a whopping 56% in a period of a little over 500 days, but this time, the global recession will be worse because the stock markets have seen a sharp 20% decline in just about a period of 3 weeks!

The 2008-09 recession had only contracted world economy by a little less than 1%, and although 1 per cent is a lot, I say ‘only’ because this year, the global economy is all set to contract by 3% at least as per IMF’s projections in its World Economic Outlook. Consumer debt is supposedly higher than ever before and stock market volatility, apparently, is as bad as it was right before the 2008 recession. Travel ban has brought airlines at the verge of bankruptcy, the entertainment industry is hit due to the norms of social distancing and impossibility of having any large gathering of people, sports industry, broadcast industry, every single wage earner working behind the scenes, every business that we can think of is at the verge of bailing out. Businesses are going to shutdown because they’ll run out of money to pay bills and salaries to employees; restaurants and eateries will be shut.