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$20 trillion recession to come? Impact of Coronavirus on the world economy

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Added 27th May 2020 09:52 PM

Of course, there was no way that anybody could have predicted what was to come in terms of the global shutdown caused by the COVID-19 pandemic.

Of course, there was no way that anybody could have predicted what was to come in terms of the global shutdown caused by the COVID-19 pandemic.

Approximately one year ago, economists started to sound warning bells of a potential downturn in the global economy for 2020. 12 months on, their predictions are a drop in the ocean as we face a global recession that could cost an almost unfathomable $20 trillion. 
 
Of course, there was no way that anybody could have predicted what was to come in terms of the global shutdown caused by the COVID19 pandemic. Over recent weeks and months, the media has spoken of little else other than the devastating human cost, and understandably so. But as the following infographic demonstrates, the economic impact seems set to be every bit as devastating.  
 
Global overview
 
In the US, GDP dropped by almost 5% over the first quarter, as the virus wrought chaos in New York, Pennsylvania and New Jersey. At the same time, unemployment figures have shot through the roof, hitting a record high of 20.5 million. Yet according to analysts, the worst is still ahead. 
 
Meanwhile, across the Atlantic, the comprehensive lockdown in the UK pointed towards an incredible 35 percent drop in GDP for March. Recent scenario analysis by the Bank of England predicts an overall drop of around 15 percent for 2020. If that proves to be correct, it will be the sharpest fall since the economic slump of 1706.
 
What makes matters worse is that, as we were warned last year, the global economy was already on a knife edge. Traditionally strong players such as Germany and the UK have seen little growth since 2018, and the inevitable borrowing that will follow the crisis will push many economies into the danger zone. In total, the problem adds up to an estimated $20 trillion of bonds and loans that are due to be repaid before the end of 2020.
 
What will undoubtedly be a crisis for the major financial powers could be a disaster for developing economies in Latin America, Asia and Africa. These face the greatest exposure in the event of a global crash, and they could be devastated by job losses and currency devaluation.
 
Glimmers of hope
 
The economic storm clouds have been brought about by increased spending in the direct fight against COVID19 and the suspension or curtailment of certain sectors. These include leisure, travel, catering, entertainment, real estate and large proportions of the retail market, to name just a few. However, there are some sectors that have not been so severely hit, and it is from these that there are glimmers of hope for the broader economy.
 
Ecommerce companies have not just proved resilient, some actually reported a spike in sales as lockdowns got under way. Meanwhile, teleconferencing and communications platforms such as Zoom and Skype have never been in greater demand. Online entertainment platforms that provide movies, TV and games have also seen exponential increases in subscribers. 
 
The lesson is clear. While different nations have approached the crisis in different ways, the only place that is truly immune from the effects of the pandemic is cyberspace, and this is where businesses need to focus their attention in the weeks and months ahead.
 

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