Question

Is the World heading for a recession? Explain the conditions under which the world can be classified as being in a recession as COVID-19 persists. Explain linking the pandemic to various stages of a recession.

Answer 1

The coronavirus is encouraging people to stay at home and avoid travel, slashing demand for flights, hotel rooms and restaurant bookings. At the same time, factory shutdowns in China and elsewhere, and fears of more disruption in other parts of the world, have snarled supply chains. This dynamic is squeezing companies, which have issued a steady stream of warnings about how the virus will hit their profits.
The longer the pandemic lasts, and the more dramatic the efforts are to contain it, the more profound the effects will be for the global economy. Right now, the situation is highly uncertain.

"The length and depth of the global economic contraction depends most importantly on whether health officials can materially slow the spread of the virus via a ramp-up in testing, restrictions on mass gatherings, and quarantines of infected people as well as their contacts," Jan Hatzius, chief economist at Goldman Sachs

In China, which has been slammed the hardest by the outbreak, activity plunged in February, setting the country up for its first economic contraction since the 1970s. That was already rippling through the global economy.

But as the number of global cases ticks up above 3000,000, and governments outside China announce more restrictions, economists have begun to weigh a more severe gut punch to the global economy. With each day that passes, the odds are rising.

Morgan Stanley's chief economist Chetan Ahya told clients that the investment bank thinks global growth will receive a "sizable shock" in the first half of 2020.

GDP growth, Morgan Stanley forecasts, will dip to an annualized rate of 2.3% before recovering to 3.1% in the following six months, boosted by stimulus from governments and central banks.

Economists warned that if the outbreak becomes more widespread, extending beyond May and hurting companies more than previously expected, the global economy will enter a recession. In this case, United States, Europe and Japan would all experience recessions, or two quarters of contraction in a row.

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