Global Economy Feels Coronavirus Burden

Although the global GDP registered a projected 1.1 percent decline during the first quarter, economists suggest that recovery is almost around the corner.
Image via Pixabay
Image via Pixabay

Companies and workers around the world are feeling the economic impact of the coronavirus outbreak. As businesses were forced to shut down in order to flatten the curve, record-high levels of unemployment claims ensued. With a growing number of countries on lockdown and only essential businesses open, many companies are experiencing the detrimental effects of COVID-19, especially those in the hospitality industry, while others such as data center companies, are weathering the crisis better. What is the extent of the pandemic’s economic pressure across the world, and what can we expect in upcoming quarters?

Steps taken

Central banks have cut interest rates worldwide, with governments introducing relief packages to offset the dramatic impact of COVID-19. In the U.S., the Federal Reserve slashed short-term interest rates by 50 basis points at the beginning of March, to a target range of 1.0 percent to 1.25 percent. Almost two weeks later, the Fed cut the rates again, to a range of 0 percent to 0.25 percent.

Meanwhile in mid-March, Japan left its key short-term interest rate unchanged at negative 0.1 percent, where it stood for more than three years. Under the monetary easing policy from the European Central Bank, the level of interest rates for Europe was negative, at 0.5 percent. Even economies that managed to avoid a downturn as a result of the 2008 financial crisis, such as Australia and China, are expected to decline significantly. Australia’s central bank kept rates at record lows in early April, at 0.25 percent for three-year government bond yields. In China, the People’s Bank cut the rate by 20 basis points to 2.95 percent.

Is recovery in sight?

According to Oxford Economics forecasts, global GDP during the first quarter likely declined by 1.1 percent and is expected to decrease by 0.3 percent this quarter. In the third quarter, the global economy is expected to recover at a faster pace, growing by 1.5 percent, and reaching 1.8 percent by the last quarter of 2020.

These forecasts suggest that the economic impact of COVID-19 will be greater in the short term than that of the Great Recession, but recovery will likely be stronger, with the economy back to pre-coronavirus levels by the fourth quarter. Of course, these predictions depend a lot on the duration of the pandemic and how long countries will maintain measures meant to prevent the spread of the virus.

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While many stock markets have declined by 30 percent since the beginning of the year, they have already started to recover, as government-provided relief packages have boosted investor confidence. But as the crisis continues, markets are expected to remain volatile, with further fluctuations anticipated over the coming weeks, or even months.

Unsurprisingly, the pandemic has taken a toll on global investment volumes, which were on an upward trend since the previous financial crash. The annual volume peaked in 2018, at $1.8 trillion, then slightly decreased last year, according to Real Capital Analytics.