World economy faces prolonged crisis

Monday, 2020-08-24 17:42:38
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Empty tables stand in front of a restaurant at the Gendarmenmarkt amidst the spread of the coronavirus disease (COVID-19) in Berlin, Germany, March 24, 2020. (Photo: Reuters)
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NDO – The world economy is in danger of falling into a serious and prolonged crisis as almost all economies are experiencing a “sad economic year”, while unemployment rates have skyrocketed and global commodity trade dropped to a record low. Meanwhile, the World Health Organisation (WHO) said that the COVID-19 pandemic is likely to continue for another year or two.

The latest statistics show that the COVID-19 pandemic is still complicated and serious worldwide, with more than 23 million people infected over the weekend. The epidemic has overwhelmed the growth prospects of economies and continues to “cast a shadow” on the global economic picture.

Statistics by the end of the second quarter of this year have shown that the world will surely have another sad year. The growth rate of the developed group as well as developing and emerging economies declined sharply. In particular, most of the developed economies, such as the US, UK, the European Union (EU) and Japan, have fallen into a state of “unceasing decline”. Negative double-digit growth rates have been recorded in many economies. Meanwhile, in key developing and emerging economies such as China, India, Russia, and countries in Southeast Asia the growth rates have decreased significantly compared to previous forecasts.

The world economy has closed a volatile first half of 2020 with many concerns, and the most mentioned influencing factor is probably COVID-19. The global pandemic has caused hundreds of millions of people to lose their jobs and pushed thousands of businesses into bankruptcy. Trade and production activities in the world have beenmore or less stagnant with many economies witnessingthe sharpest decline in decades.

The latest statistics released by the US Government at the end of July showed that the world's largest economy in the second quarter of this year fell by 33%, marking it the worst figure since 1947. Previously, the US economy declined by 5% in the first quarter and officially fell into recession, ending a chain of growth that lasted for 11 consecutive years. Fitch has warned that the world's largest economy will face high public debt and worsening budget deficits due to the COVID-19 crisis.

Meanwhile, the pandemic has also “cast a shadow” on the European economy, causing growth in the economies of the “Old Continent” to decline sharply. According to Eurostat, the statistical office of the European Union, in the second quarter of 2020, the Eurozone economy was strongly affected by the epidemic, causing the gross domestic product (GDP) of this bloc down by 12.1%, the strongest decline since 1995. Even Germany, the regional leading economy, reported a 10.1% decline in GDP, while France's GDP fell by 13.8% in the past quarter.

In Asia, China's growth in the first six months of this year decreased by 1.6% compared to the same period in 2019. The COVID-19 epidemic and severe floods are threatening to wipe out the country’s economic recovery efforts. Japan has also fallen into recession for the first time since 2015 due to negative growth for two consecutive quarters. Compared to the same period in 2019, Japan's GDP declined by 3.4% in the first quarter of 2020 (ending in June 2020) as local consumption, capital spending and exports all declined. Previously, in the fourth quarter of 2019, the country's economy recorded a decrease of 7.3%.

In addition, key economic sectors from production to services and consumption have been significantly stagnant. The World Trade Organisation (WTO) said that its measure of trade in goods hit a record low, showing that the global trade in goods fell to its lowest level in the second quarter of 2020 as the epidemic spread. Accordingly, merchandise trade barometer stood at 84.5points, down 18.6 points over the same period last year. In addition, the unemployment rate has skyrocketed and the pressure on social security is becoming increasingly burdensome on economies.

Although major economies of the world have launched big stimulus packages and expect that these “steel punches” will break the “siege of difficulty” caused by the COVID-19 epidemic, most international organisations such as the International Monetary Fund (IMF) and the World Bank (WB) have consensus on the view that the global economy has yet to see the "light at the end of the tunnel" and recover in the short term.

When the global economy can recover depends largely on when the COVID-19 crisis ends. However, WHO Director-General has just said that the COVID-19 crisis is unlikely to end soon and may last for one to two more years. Analysts are concerned that the global economy is at risk of falling into a state of “prolonged depression”and it is unknown when it will be possible to recover.