There have been countless debates on whether COVID-19 will be the precursor to another depression or not, so it was only right that I did some research. This virus has brought the world’s economy to a halt and many economists have predicted that it will lead to a recession. If you’re like me, you’re probably wondering what’s the difference between the two. Aljazeera advised the following:
- A recession is defined as two consecutive quarters or six straight months of negative economic growth.
- The National Bureau of Economic Research (NBER) defines it as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP (gross domestic product), real income, employment, industrial production, and wholesale-retail sales.
- A recession can last longer than 6 months. For example, The Great Recession in 2007 lasted until 2009.
- A depression is when a country is faced with an economic downturn that’s measured in years instead of quarters. For example, The Great Depression in 1929 lasted until 1939.
Although some economists believe that economic activity could pick up in the second half of the year, many see a recession coming. Wall Street’s Goldman Sachs believes that the United States could drop 24% from April through June and that unemployment could peak at 9%. Capital Economics sees the US dropping 40% and unemployment peeking to 12%, but no one can say for sure.
According to Bloomberg, Morgan Stanley economists say a worldwide recession is now its base case and economic growth is expected to fall 0.9% this year. They’ve advised the following:
“We are downgrading our forecast for China’s 2020 growth. Our previous forecast for the year was growth at 5.2%. Our new forecast is 1.4%. That includes a 11% contraction in the first quarter.”
The predictions could get worse if lockdowns last longer than expected, since schools, factories, restaurants, and shops are closed. But The International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, does have hope.
“We do project recovery in 2021. In fact, there may be a sizeable rebound, but only if we succeed with containing the virus everywhere and prevent liquidity problems from becoming a solvency issue.”
These are all predictions, so none of it is set in stone. All we can do at this point is to share information and ride this out.
If you have any updates, feel free to comment below.
Until Next Time…
Armstrong, M. (2020, March 28). IMF declares global recession and doubles the size if its financial war chest. Retrieved March 30, 2020, from https://www.euronews.com/2020/03/28/imf-declares-global-recession-and-doubles-the-size-if-its-financial-war-chest
Condon, C., & Kearns, J. (2020, March 17). Morgan Stanley, Goldman Declare Global Recession Under Way. Retrieved March 30, 2020, from https://www.bloomberg.com/news/articles/2020-03-17/morgan-stanley-economists-say-global-recession-now-base-case
Sabga, P. (n.d.). Coronavirus economy: Recession or depression? Retrieved March 30, 2020, from https://www.aljazeera.com/ajimpact/coronavirus-economy-recession-depression-200324161905531.html