This Article is written by Palak Nigam (currently pursuing my B.A, LLB degree from KIIT School of Law, Odisha)
Introduction
The COVID-19 pandemic has caused a global economic recession which is a covid-19 recession. This recession started in February 2020 and it is considered the worst world financial crisis since the Great Depression. Due to the global economic slowdown for a year that saw a slump of the market and the consumer working, the lockdown and other precautions taken during the pandemic in early 2020 threw the economies into calamity. Within a period of seven months, every developed economy had started facing recession or depression, while all the developing economies were already in the recession. According to World Bank, in various areas, a full recovery of the economy is not possible until 2025 or beyond that. The foremost indication of a recession was the 2020 stock market boom, which causes a drop in major indices. However, recovery began in April 2020, and the indices of many markets started recovering or even set new records by late 2020.
But the recession has its major impacts. The recession has seen terribly high and instant increase in unemployment status in various countries of the world. In the US by October 2020 approx. 11 million unemployment cases had been registered. In April 2020, the United Nations reported that global unemployment will eradicate 6.7% of the working hours globally in the second quarter of 2020 equal to almost 195 million full-time workers. A decrease in remittance and worsening COVID-19 pandemic has also affected the developing countries.
The current recession and the Russia-Saudi Arabia oil price war in the year 2020 led to a decrease in the price of oil, the fall down in tourism, the energy industry, and deflation in consumer activity as compared to the last 10 years.
GLOBAL ECONOMIC SLOWDOWN:
International Monetary fund during 2019 reported that the economy of the world was going through Coincide slowdown which entered into its slowest pace since the Global Financial Crisis. Consumer markets were also going through various cracks in the global markets which started suffering from a deep deterioration of manufacturing activity. Global growth was considered to be peaked in the year 2017. At that time the world’s total industrial output began to start an enormous decline beginning of 2018. The reason for the slowdown given by the IMF was the intensified trade and geopolitical tensions, following Brexit and the China-United States trade war as the primary reasons for the slowdown in 2019, while liquidity issue was also one of them.
The main reasons for the global economic slowdown are as follows:
China–United States trade war
This trade war started form 2018 and had a very crucial impact on the economy of the world. In 2018, the then president of the US Donald trump started putting tariffs and other trade barriers on China with the aim of pressurizing it to make changes to what the U.S considered as unfair trade exercises. Because of these trade practices, their effects were like a growing trade deficit, the stealing of intellectual property, and the forced transfer of USA technology to China.
This trade war brought various types of struggles in the USA. These struggles were to be faced by farmers, manufacturers, and higher prices for consumers, which caused the U.S manufacturing industry to enter into a mild recession during 2019. Other countries were also facing economic damage like violent protests in Chile and Ecuador due to transport and energy price rises. However, some countries got benefits from increased manufacturing to fill the loopholes. This has also caused stock market instability. The steps were taken by the government of various countries like the USA and China to look into some of the damage caused by a worsening of China-United States relations and tit-for-tat tariffs. At the time of recession, the decrease of consumerism and manufacturing from the trade war has exasperated the economic crisis.
Brexit
The Brexit i.e. the withdrawal of the United Kingdom from the European Union caused the economies with uncertainty. The growth of the EU and Brexit stopped during 2019 which caused the Brexit, because of the high uncertainty in the UK caused by political interference and movement aiming to oppose, reverse or stop the 2016 Brexit, resulting in delays and postponement of the decision. In 2019, the UK faced a near recession as a consequence of which the British economy was weakened as entering into the year 2020. Many businesses came out of the UK and entered into the EU which subsequently resulted in trade loss and economic slowdown for both the UK and the EU members.
Liquidity crisis of Evergrande Group
China’s second-largest property dealer and developer Evergrande group were trapped in a debt in august 2021. Having missed manifolds payment dues in September 2021, there is a high possibility that the company will crimp unless government bailout interference, stocks of the company having already crashed by 85% approx. China being the second-largest economy in the world and its property makes a large contribution to their GDP, there is a high chance of destabilizing the covid-19 recession, even more, especially making china deep within a housing bubble surrounding the United States housing bubble that causes to the previous global recession.
CAUSES OF THE GLOBAL RECESSION:
There are some of the causes of the global recession which are as follows:
COVID-19 pandemic
The covid-19 pandemic is a Coronavirus disease 2019 caused by severe acute respiratory syndrome SRS-CoV-2. The outbreak was first identified in Wuhan, China, in 2019 December, declared public health emergency by the World Health Organization on 11 March 2020. The pandemic has caused a severe global economic disruption, the cancellation for sporting, for the time being, the postponement of religious, political, and cultural events, the stopping of the people from gathering at a place, and the widespread shortage of supplies worsen by panic buying. All over the world, school, universities, and colleges were closed and even today many of them are not opened and if they are opened then proper safety precautions and social-distancing is followed. All non-essential travel was stopped by the government due to the outbreak. However, the virus is still spreading across the country and many are not knowing that from where they are getting infected.
The pandemic has long-lasting effects beyond the spread of the disease and efforts to quarantine it. As the pandemic has spread across the globe, concerns have transferred from supply-side manufacturing matters to a downturn in the business in the services sector. The COVID-19 pandemic is considered the main factor in causing the global recession. Due to this pandemic, nearly every industry has been affected which lead to the stock market crash and further restricted social liberties and movement.
Lockdowns due to Pandemic
Many businesses were affected by the lockdown on various countries, those were mainly affected who were providing in-person services (like retail stores, restaurants, and hotels, etc). Before the local government declared stay-at-home orders in the united states, people began to change their economic behaviour prior to that order, and by may, individual rates of the movement started changing reported by smartphone data. According to a 2021 study, only 7% of the decrease in economic activity was due to government-imposed restrictions on activity; the major decline was due to individuals voluntarily disengaging from business or trade.
Russia–Saudi Arabia oil price war
The demand for oil was significantly decreased due to the reduction in the demand for travel and the stoppage in the activity of the factory due to the COVID-19 pandemic, causing the price of the oil to fall. The crashing of the price of oil worsened the recession more. The International Energy Agency estimated in February that oil demand growth in 2020 would be the slightest since 2011. A collapse in Chinese insistence resulted in a conference of the Organization of Petroleum Exporting Countries (OPEC) to consider a potential cut in production to bring the loss in demand in equilibrium. Since the Iraq War, regarding the production level of oil, the cartel made an agreement to cut oil production by 1.5 million barrels per day which would certainly bring the production levels to the lowest.
Saudi Arabia and Russia both announced increases in oil production when OPEC AND Russia failed to decide on oil manufacturing cuts which result in the oil prices fell by 25 per cent. Further, unexpectedly Saudi Arabia announced that it would enhance the fabrication of crude oil and sell it at a discount to buyers in Asia, the US, and Europe, following the mediation in the breakdown as Russia refrained from calls to cut fabrication.
At the starting of the year, before the announcement, the price of oil had gone by more than 30% and when an announcement was made by Saudi Arabia, it dropped further 30%, however, after that, it recovered somewhat. The largest drop was faced by an oil market that used to price two-thirds of the global’s crude oil supplies since the 1991 Gulf War i.e. Brent Crude. At the same time, the price of another market i.e. West Texas Intermediate used as a benchmark for the global oil price, fell to its lowest level. Bob McNally an energy expert noted that for the first time since 1930 a massive negative demand shock has coexisted with a supply shock. The Russian-Saudi Arabian oil price fear caused a shove in U.S stocks and have a specific effect on American manufacturers of shale oil.
Saudi Arabia and Russia in early April 2020 decided to cut their oil fabrication. It was reported by Reuters that if Saudi Arabia failed to helm in output, US senators are asked to impose sanctions on Riyadh, withdraw US troops and impose import tariffs on Saudi oil.
GLOBAL ECONOMIC PROSPECTS IN THE RECESSION:
Global economic prospects address key features of this historic economic shock:
How deep the recession be due to covid-19? – An analysis of 183 economics all over the world over the period of 1870-2021 gives a historical outlook on the global recession.
Possible growth outcomes- There exists an unusual perspective regarding the growth projection due to the current global recession.
How does informality exasperate the influence of the pandemic? The countries with high informality are likely to face many consequences of pandemics like heath and economic consequences.
Low-income countries outlook- Due to the pandemic, there are more consequences faced by the people of poor countries. As they are already financially weak, behind this the pandemic is making them more financially weak.
Impact on global value chain and supply- The pandemic and its effects are more prone to the global value chain and it can enlarge the shocks of the pandemic on trade, production, and financial markets.
Lasting lark of the pandemic- Deep recession due to the pandemic is likely to do long-term harm to investment, worsen human capital through unemployment, conduce to a retreat from global trade and supply link.
Cheap oil implication on recession- Due to the unpredictable decrease in the demand of the people, low oil prices are unlikely to bulwark the consequences of the pandemic but can give hope of recovery.
IMPACT OF COVID-19 AND ECONOMIC RECESSION ON FOOD SECURITY
Unlike the Great Recession, it is also predicted that the current pandemic will also affect the major population of the country and especially of developing countries. The United Nations World Food Program on 21 April warned that a famine of biblical portions was to be possible in various parts of the world as an effect of pandemics. The global report on food crisis 2020 reported that 55 countries were at risk with David Beasly calculating that in the worst case about three dozen countries would yield to famine. This is especially the issue of certain countries majorly due to war, including Yemini Civil War, the Afghanistan Conflict, and the 2019 locust infestation in East Africa. The United Nations Foundation and farmers’ unions have written to the G20 for help in maintaining and managing food distributions to prevent food shortages. It is calculated that double the number of people will go hungry as compared to the previous pandemics.
