Global Economic Crisis

There are two conflicting versions of reality emerging  regarding  long-term economic trends generated by the global health crisis. On the one hand, enforced lockdowns of key economic activity in response to the Covid-19 pandemic has already led to a worldwide recession that is by all measures far worse than the Global Financial Crisis of 2007-09. On the other hand, central banks, multinational economic forums and leading investment bankers are predicting  a V-shaped recovery; a sharp rise in economic activity following the steep decline due to the coronavirus.

A lesson from 2007-09 is that reality and data trump optimism. It must  be recalled that at the onset of the Global Financial Crisis, well into 2008, the U.S. Federal Reserve predicted that there would be no recession. Only months later, Lehman Brothers collapsed.

In the Global Economic Crisis created by the Covid-19  pandemic, the collapse of key industries such as tourism and airlines, the energy sector and manufacturing, the implosion of retail trade  and decline of exports and imports already rival the level of contraction that occurred during the Great Depression of the 1930s. This implosion in economic activity has occurred in 2020 in a matter of months, not years as with the Great Depression. Furthermore, the massive deficit spending by sovereigns, combined with the collapse in tax revenue, points to a staggering debt crisis globally in the near future.

Health experts warn of a second or even third wave of the coronavirus, thwarting attempts at restarting the global economy. A vaccine, in the most optimistic scenarios, is at least a year away. And even if a vaccine is developed and widely distributed,  the cumulative damage to the global economy will linger for years.

The most realistic scenario is that the 2020s will be a decade of unprecedented economic depression.