COVID-19 will cause depression

During the pandemic crisis, the world economy will plunge into recession; and will not begin to recover until a working vaccine is finally discovered and made available globally. This is the assumption I have held onto since the start of this coronavirus crisis.

I have based my thinking on the projections of the International Monetary Fund.  American geopolitical expert Ian Bremmer has presented his own conclusion that is predicting a global depression even next year.

If we look first at the IMF projection, the global economy would contract by 3 percent this year. According to the IMF report: “Many countries face a multi-layered crisis, which is caused by health shock, domestic economic disruptions, falling foreign demand, reversal of the capital flow and the collapse of commodity prices.”

Most of the economic effects of the coronavirus is not from the virus itself but from measures taken to prevent its spread. Most countries opted for lockdowns or self quarantine as preventive measures, encouraging people to isolate themselves, closing schools, colleges and universities and imposing strict restrictions on travel. Additionally, they restrict the movement of goods, workers and consumers. Due to the pandemic, most countries are closing their restaurants, cinemas, transportation services, hotels, shops and industries. For this reason, people try to work at home.

This is often the cause of major debates. For those who oppose lockdowns, the question is what are their proposals to prevent the spread of COVID-19? Some countries seemed to have found the solution. However, these countries started reopening their economy and were hit by a new spike in cases. Until a few weeks ago, New Zealand was considered a model – no new cases in a hundred days. Recently they had some new cases and the prime minister ordered a new lockdown.

I have been following the writings of Ian Bremmer for almost a decade. The focus of his writing is on global political risks. He has published ten books on global affairs and will be teaching a course “Applied Geopolitics” at Columbia University.

He recently wrote an article: “A New Global Depression is Coming: Forget Rapid Recovery. Covid-19 Will Bring Prolonged Economic Pain.” In his article, he says there are three factors that separate a true economic depression from a mere recession. First, the impact is global. Second, it cuts deeper into livelihoods than any recession we’ve faced in our lifetimes. Third, its bad effects will linger longer.

The COVID-19 crisis is global. The slowdown of economies in major countries will have global impact. COVID-19 will force many businesses to close permanently. This is now happening as we hear about businesses, especially small and medium sized businesses, closing. There are announcements all over the world of businesses downsizing or closing down permanently. Many workers will not have jobs to return to.

At the onset of the pandemic, countries resorted to two measures to help the population. The first was instituting a social safety net, distributing food and money to the population. These social safety nets cannot last in developing countries like the Philippines. The second was providing healthcare, especially for the poor. After several months, the healthcare systems in poorer countries like the Philippines are already buckling under the strain. Even in some of the richer countries, healthcare personnel are complaining that the burden is too high.

The bad news in Bremmer’s presentation is that this coming depression will last longer than the recessions of the past 80 years.

COVID-19 has also shown multinationals that excessive dependence on East Asia in the manufacturing industry poses a severe risk for global supply chains. Because of this rising tide of anti-globalization, multinational companies must move part of their production facilities from China to other regions in the world. Some American and European companies will also choose to shift factories back to their own countries. In order to make this possible, the weight of blue collar workers will have to be reduced. This will add to the unemployment issues. Countries may switch from implementing liberal to protectionist policies.

I had always thought that economic recovery for most countries meant either a “V-shaped” recovery which means after a fall in the economy, this will be followed by a rapid increase. The other scenario was a “U shaped” recovery which meant that after a fall in the economy there will be a period of stagnation and then the recovery will start.

Bremmer writes: “…there will be no sustainable recovery until the virus is fully contained. That probably means a vaccine. Even when there is a vaccine, it won’t flip a switch bringing the world back to normal. Some will have the vaccine before others do. Some who are offered it won’t take it. Recovery will come by fits and starts.”

Bremmer advises that world leaders should resist the urge to tell people that brighter days are just around the corner. He says: “People need leaders to take responsibility for tough decisions.” He warns that it will become progressively harder politically to impose second and third lockdowns.

Governments must do more to coordinate virus containment plans. Leaders must unify the different sectors around a common plan that will ensure that our people can successfully face the coming global depression.

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