Where We Are Headed Now

NEED TO KNOW

WORLD

Into the Great Unknown

Will the coronavirus pandemic spell the end of the global economy as we know it?

Many seem to think so. At a time when social distancing and lockdowns have changed everyone’s lives, leaders around the world will likely seek to restructure their technology sectors, manufacturing capacity and supply chains to reduce dependence on faraway countries, wrote the New York Times.

The transition between the old and new worlds could be painful, however.

The International Monetary Fund is predicting that the Great Lockdown might be worse than the Great Recession that started in 2008 and the Great Depression of the 1930s, Bloomberg reported. Global gross domestic product is on track to shrink 3 percent this year. In January, fund analysts predicted a 3.3 percent expansion. They estimated that the world would lose around $9 trillion in economic activity – an amount equal to the economies of Japan and Germany.

“It’s as if we’ve fallen off a cliff or fallen into a black hole,” said economist Kathy Bostjancic in an interview with the BBC.

Governments around the world are almost certainly going to spend more than the $7 trillion that CNN identified last month as they struggle to prevent global economic meltdown.

The American government appropriated $2.2 trillion, around a tenth of US gross domestic product, to address the shortfall. The Federal Reserve additionally unleashed $2.3 trillion to keep the economy moving. Most observers believe that’s just the beginning.

Germany’s stimulus package, for example, increased federal spending by 50 percent, abandoning the frugality that marked German reluctance to bail out Greece a decade ago. Its package broke the strongest taboo in Germany politics – deficit spending that is equivalent to a quarter of German GDP, the most aggressive action of any country anywhere, Politico reported.

Many analysts worry about countries like Brazil, South Africa, India and the Middle East, where massive populations of impoverished people are vulnerable to the health and economic consequences of the pandemic. Those and other countries have already requested $2.5 trillion from the International Monetary Fund to shore up their economies. Otherwise, the world can expect another, bigger migration crisis that might further spread the virus.

“Trouble travels. It doesn’t stay in one place,” International Monetary Fund Managing Director Kristalina Georgieva told the Washington Post. “This pandemic will not be over until it’s over everywhere.”

Under pressure from the US, Saudi Arabia and Russia ended their oil price war, a move designed to prevent a freefall in prices that would cause damage throughout the world economy, the Financial Times explained. But it failed. On Monday, there was a historic crash in oil prices, with the price of crude trading in double-digit negative numbers, Marketplace reported. Producers, with a collapse in demand due to the worldwide economic standstill of the lockdowns, are literally drowning in oil.

What’s coming next is anyone’s guess – there is no precedent or playbook for what is happening right now. The lessons of the past are only somewhat useful, stamping out small fires but not the blaze.

And while economists’ predictions vary, most agree on this: An entirely new approach to the global economy will be needed when the pandemic is over.

When that is, and what the transformation will look like are the great unknowns today.