COVID-19’s devastating effect on world economies

economy, louis vuitton, new york city

When the World Health Organization declared a coronavirus pandemic on March 11, Director-General Dr Tedros Adhanom Ghebreyesus said: “We have never before seen a pandemic sparked by a coronavirus. This is the first pandemic caused by a coronavirus. And we have never before seen a pandemic that can be controlled, at the same time.” He never mentioned the effect it would have on the global economy.

The number of cases of COVID-19 now is fast approaching 22 million and almost 773,000 have died across the world. Infection rates are still rising. Governments across the world shut down their economies in March and April and many have not been able to operate fully since. The airline industry has been one of the hardest hit.

As this graph provided by Worldometers below shows, the number of cases is still rising. India on Sunday recorded 58,108 new cases and 961 new deaths, the US 36,843 new cases and 522 new deaths and Brazil 22,365 new cases and 582 new deaths.

economy, COVID, COVID-19
The latest graph showing the number of cases of COVID-19 and the number of deaths from the virus. Source: Worldometers

Japan on Monday announced its biggest economic contraction on record in the second quarter as the coronavirus pandemic crushed business and consumer spending. Gross domestic product fell by an annualised 27.8% in April-June, government data showed, marking the biggest decline since comparable data became available in 1980. It was the third straight quarter of contraction revealing Japan is in the midst of a recession.

economy, Shinzō Abe
Japan’s Prime Minister Shinzō Abe leads a country in recession.

Israel on Sunday announced that it was in recession. The economy contracted by 6.8% in the first quarter and plummeted by 28.7% on an annualised rate in the second quarter, with massive job losses and weaker consumer spending, trade and investment. Israel’s exports fell 29.2%, private spending slid 43.4%; imports dropped 41.7% and investment in fixed assets plunged 31.6% and residential building down 41.6% in the second quarter. It was the biggest decline in at least four decades since the Israeli government began providing quarterly figures

“The contraction in the second quarter was relatively modest compared to other developed markets,” said Leader Capital Markets Economist Jonathan Katz, pointing to steeper declines in the US and across Europe, reported Reuters. Israel’s Prime Minister Benjamin Netanyahu noted the drop in gross domestic product was “half the decline in the European states; it is almost the lowest in the world”.

Benjamin Netanyahu, economy
Israeli Prime Minister Benjamin Netanyahu. Photo: Wikimedia Commons

In the US, the Gross Domestic product declined at an annualized rate of 32.9%, which is the sharpest economic contraction in modern American history. The economic shock in April, May and June was more than three times as sharp as the previous record — 10% in 1958 — and nearly four times the worst quarter during the Great Recession.

Canada suffered a 40% annualised fall in its second quarter result, the deepest plunge ever recorded. Canada enacted restrictions earlier than the US and eased them less aggressively, Royce Mendes, a senior economist with CIBC Capital Markets said in a note.

Gross Domestic Product in the second quarter in the UK fell 59.8% on an annualised rate. It was the worst fall in Europe and put the UK into recession. The UK also has the highest death toll (41,366) from COVID-19 in Europe.

“I’ve said before that hard times were ahead and today’s figures confirm that hard times are here,” said UK Chancellor Rishi Sunak. “Hundreds of thousands of people have already lost their jobs and, sadly, in the coming months many more will. But while there are difficult choices to be made ahead, we will get through this and I can assure people that nobody will be left without hope or opportunity.”

economy, Rishi Sunak
UK Chancellor Rishi Sunak is in charge of the worst economy in Europe.

Spain, another country badly hit by the coronavirus, saw its economy slump 55.8% on an annualised rate while Italy’s economy fell 41% on an annualised rate and the Netherlands 20%.

Economic output in Europe’s powerhouse Germany shrank during this year’s second quarter by 34.7% on an annualised basis, the steepest drop since that country’s Federal Statistical Office began tracking quarterly economic data a half-century ago.

“It’s an astounding figure,” writes Henrik Böhme, an economic analyst for German state broadcaster DW. “Never before in Germany’s postwar history has the country’s economy slumped as sharply as in the second quarter of 2020.”

“The figure isn’t surprising,” Böhme added, “particularly at a time when the factories stopped producing, container ships stopped loading, services couldn’t be provided, trade fairs no longer took place and restaurants had to stay closed.”

Sweden, which avoided a lockdown during the height of the coronavirus pandemic, will release its second quarter financial results on 28 August. According to Statistics Sweden, the economy will suffer its largest drop (30.2% annualised fall) since comparable statistics became available.

Recession-hit France also suffered its worst ever fall in economic figures and a third consecutive quarterly drop for the economy.

Conversely China, the first country to report the coronavirus on December 31 last year, stated last month that the country’s gross domestic product grew by 3.2% in the second quarter of this year, compared to a year ago, rebounding from the first quarter’s contraction.

Elsewhere in Asia, Malaysia’s economy contracted 17.1% on the year in the second quarter, the central bank announced on Friday. It is Malaysia’s worst performance on record and first quarterly decline since the third period of 2009 during the global financial crisis.

“Malaysia was affected badly if compared to the other countries in the region due to several factors, which include degree of containment, compliance rate toward the containment measures and the relative importance of the tourism sector to the economy,” central bank Governor Nor Shamsiah Yunus told a virtual news conference. Prime Minister Muhyiddin Yassin said in May that Malaysia was losing around 2.4 billion ringgit (US$558.4 million) every day since the lockdown or “movement control order” took effect.

The Philippines has entered its first recession in 29 years. The number of COVID-19 cases has risen more than sixfold since restrictions were eased in June, making the Philippine outbreak the second-largest in Southeast Asia. Compared to 12 months ago, consumer spending fell 15.5%, industrial production declined 22.9%, services contracted 15.8% and government spending rose 22.1%.

Australia warned last month that its economy would shrink at its fastest pace in history during the second quarter, while the budget deficit will be the biggest since World War II. In New Zealand, ASB chief economist Nick Tuffley and senior economist Jane Turner forecast a 17% fall in the June quarter GDP.

A vaccine represents the only hope for an economic revival in the short-term. Moderna, AstraZeneca and a combined Pfizer and BioNTech are the frontrunners and Brazil’s acting Health Minister General Eduardo Pazuello believes “January is the best bet”.

Related posts