Sheldon Filger-blogger for GlobalEconomicCrisis.com
The Center For Economics and Business Research (CEBR), a UK based consultancy firm, has issued a new forecast that projects China’s GDP will surpass that of the United States by 2028, making China the largest economy in the world. This projection is five years earlier than an earlier forecast, pointing to an accelerating decline in U.S. economic strength relative to that of the People’s Republic of China.
According to the CEBR, the primary driver in the imminent surpassing of America’s GDP by China is the impact of Covid-19. The coronavirus pandemic has impacted the U.S. more than any other national economy, creating massive financial losses, major economic dislocation and political instability that also retards future economic growth. In contrast, though the pandemic originated in the Chinese city of Wuhan, the draconian measures adopted by Beijing led in the long-term to less economic damage. The relatively low rate of Covid infections in China over the past several months has enabled America’s primary economic competitor to return to growth, while the United States in mired in a patchwork of intermittent and inconsistent lockdowns, while infection rates and mortality are at a peak.
The fact that China is now projected to have the largest GDP in the world by 2028 will have significant geopolitical consequences, as well as determine which country will have the most impact on the global economy. Thus far, there are no signs that political leaders in either the U.S., Europe or Russia have fully comprehend the seismic shift in economic power that is occurring virtually in real time, largely enabled by a global pandemic that ironically originated in China.
A growing consensus among economists is that the second wave of Covid-19 has induced a repeat of the lockdowns of economic activity that sent Q2 metrics into a tailspin. Though the lockdowns currently underway may not exactly match the draconian character of the earlier shutdowns, they are becoming increasingly severe as the coronavirus infection rate in many European countries threatens to overwhelm their medical systems.
Though several viable vaccines are on the horizon, it will likely not be until mid to late 2021 that they succeed in terminating the current pandemic. The current reality in terms of economic activity and Covid-19 makes it increasingly clear that the Eurozone, for the most part, will return to recession after the recovery in Q3. This means at least 2 consecutive quarters of negative growth from the Eurozone, in Q4 2020 and Q1 2021.
Inevitably, a double dip recession throughout the Eurozone will have a significant negative impact on the region’s primary trading and economic partners, notably China and the United States. In addition, the projected double dip recession will further strain sovereign balance sheets, already burdened with unprecedented levels of debt for addressing the recession that occurred in Q2. Adding trillions of euros in public debt, and trillions more, to the balance sheet of the European Central Bank, points to a growing sovereign debt crisis likely to impact just as the pandemic has receded.
The corporate media and social media complex, America’s new power center, has declared that former Vice President Biden is now President-elect Biden. Though Trump is pursuing a last ditch, scorched-earth policy of legal challenges, with no concession in sight, the odds are virtually certain that Biden will be inaugurated as the 46th president of the United States. What are the global economic implications of this?
The Covid-19 pandemic has unshed in the worst economic downturn since the Great Depression of the 1930s.The Q3 uptick is now likely to be followed by a double dip recession, as a second wave of coronavirus ravages a advanced economies, including the United States. Though the Biden policy team is committed to a more aggressive stance on combating Covid-19 and offering large fiscal stimulus packages. the economic prognosis is not bright.
Biden will enter the presidency with a divided electorate, including 70 million Trump voters, who are largely convinced that the election was a fraud, meaning the incoming presidency is illegitimate. Instead of the expected Blue Wave, the Democratic majority in the House of Representatives is reduced, and the GOP may very well retain control of the Senate. Divided government, and a divided people will create instability in what is still the world’s largest economy, possessing the strongest military power. That does not portend well towards an economic recovery.
Continued economic shutdowns due to the pandemic, ineffective fiscal stimulus programs combined with growing sovereign debt along with the political and social instability in the U.S. lead to the conclusion that the trajectory towards an economic depression, already baked into the cake, will accelerate. It is likely to happen during the incoming administration’s four-year term.
With Europe and North America experiencing a virulent second wave of the coronavirus pandemic, lockdowns of the economy are being reintroduced by sovereigns on an increasingly stringent basis. As an example, many regions in Spain are imposing enforced curfews.
The first wave of economic shutdowns sparked the worst economic contraction in many developed countries since the Great Depression of the 1930s, greatly surpassing the Global Financial Crisis of 2007-2009 in severity. A return to at least semi-normal economic activity facilitated a sharp statistical bump in economic growth. Now, another major contraction looms on the horizon.
Depending on the duration of the current wave of Covid-19 induced shutdowns, a double dip recession looks increasingly likely for many economies, both advanced and developing. A double-dip recession also raises the possibility that a global economic depression, already a strong possibility, becomes a virtual certainty.
A resurgence, in effect the predicted second wave of the Covid-19 pandemic, is in full motion, striking at both advanced economies as well as large developed economies, such as India and Brazil. The confirmed worldwide death toll has now passed one million, a number both large and yet most probably a severe undercount of the actual number of fatalities generated by the coronavirus pandemic.
The toll in human misery is staggering. More than 35 million persons have been infected with Covid-19. It spares no one; the commoner and the elite are all at risk, as the recent news of President Trump contracting coronavirus indicates. However, the damage inflicted on the world’s economy is as severe as that incurred on public health.
The enforced lockdowns imposed by sovereigns as the only currently available means of halting the spread of coronavirus resulted in unprecedented demand destruction in Q2 of 2020. Optimists predicted a V-shaped recovery as a quick end to lockdowns would lead to a rapid “snap-back” in economic demand. That, and unprecedented deficit spending by governments and money-printing by central banks, temporarily reversed the massive fall in equity prices and induced unwarranted optimism. Now that governments are again imposing draconian lockdowns throughout the world, the evidence mounts that the severe recession created by the pandemic will eventually morph into a full-blown economic depression.
Even once buoyant economists are grasping at straws, praying that quick development and production of an effective vaccine will save the global economy as well as preserve lives. However, even in a best case scenario, a safe and effective vaccine is unlikely to be widely available until the latter half of 2021. The likelihood is that the world will experience, along with the public health consequences, another 6-months of demand destruction and self-imposed economic suicide. Yet, governments, politicians and economists have yet to grasp the full measure of the Global Economic Crisis that is now upon us.
Government leaders and financial pundits continue to trumpet the myth of the V-shaped economic recovery, a leading factor in the ability of Wall Street and other exchanges to recoup virtually all their catastrophic losses inflicted in the early stages of theCovid-19 pandemic. Yet, despite the happy talk, the anemic recovery occurring in many economies during Q3 is already in danger of being premature. Growing headwinds lie ahead for the global economy.
The temporary alleviation of the worst affects of the economic lockdowns that occurred throughout the second quarter of the year were purchased with a staggering and unprecedented level of sovereign debt. To give only one example, Canada is projecting a government deficit for 2020 of $343 billion (Canadian), in USD equaling to about $260 billion USD. In the United Sates, the 2020 fiscal deficit incurred by the federal government t (excluding state, county and local government expenditures) is projected currently at 3.3 trillion dollars; more than 15% of America’s GDP.
Never before in human history have sovereigns incurred such massive debt levels within a very short time interval. This rampant borrowing has not been unleashed to fund major infrastructure projects and other activity aimed at stimulating economic growth. In fact, this massive borrowing binge has been utilized by policymakers for two purposes: providing a financial lifeline to the vast numbers of newly unemployed, and pump up the equity markets that were on the verge of implosion.
For the short-term, stock prices may have recovered and large numbers of unemployed workers have been rescued from instant insolvency. However, with new pockets of Covid-19 emerging and leading to renewed economic lockdowns, and the threat of a second-wave of the coronavirus looming, economic disaster stands right before us. The possibility of an effective vaccine is the remaining hope for much of the world to escape a Great Depression of the 21st century. How realistic such a therapeutic creation is for the salvation of the global economy remains to be seen.
Official data just released reveals that the United Kingdom has experienced its worst recession since quarterly economic output reports were first tabulated in1955. In Q2 of 2020 the UK’s GDP contracted by negative 20.4%. This rate of economic contraction was driven by enforced lockdowns of much of the British economy in the wake of Covid-19, which has stricken the nation more than other European economies.
The calamitous Q2 economic data means that the UK is experiencing the worst degree of economic collapse of any major developed economy. As bad as the economic news is, there is reason to believe it will get worse. Even the UK government admits that unemployment, already at record levels, will significantly increase in the months ahead. The government has warned of hundreds of thousands of additional jobs that will cease to exists as the coronavirus pandemic continues to paralyze the economy, leading to an unprecedented level of demand destruction.
The dire economic news from the UK is reflective of what is transpiring throughout the world. Despite continued talk by many pundits and government officials in leading economies about the likely V-shaped recovery of economic growth, based on optimistic forecasts of early vaccine development and improved Covid-19 therapeutics, the hard data offers increasing evidence of a Global Economic Crisis, in effect the Great Depression of the 21st century.
Official statistics just released indicated a worse than expected decline in Germany’s GDP. The Q2 of negative 10.1 % follows a less sharp contraction in Q1. This is the most severe quarterly decline in economic activity in Germany since then end of the Second World War and the establishment of the Federal Republic. Germany is Europe’s largest and most successful economy, and the decline reflects the widespread economic damage being inflicted by the Coronavirus pandemic.
Optimists will point to a likely strong rebound in Q3, as economic activity picks up with a reduction in Covid-19 lockdown measures. Such a rebound is likely to be temporary. The renewal of Covid-19 outbreaks in various hotspots throughout Europe, and forecasts of a second pandemic wave this Fall, are predictive of future bad economic news. In addition, the export-dependent German economy will likely be buffeted by Coronavirus infection rate increases in many of its major export markets, in particular the United States.
The latest German economic data reinforces the growing consensus that the pandemic-driven global recession, already the worst since the Great Depression of the 1930s, will likely evolve into a full-blown economic depression lasting many years.
Coronavirus has already unleashed a severe worldwide recession that is far worse than the Global Financial Crisis of 2007-09. In the words of economist Nouriel Roubini, the emergence of the Covid-19 pandemic resembled an asteroid striking the global economy.
The response of governments was inconsistent, but basically followed the following pattern; shut down much of the economy, accumulate unprecedented levels of debt to subsidize investors, businesses and laid-off employees, while hoping for the miracle of a quickly-developed vaccine. Amid the sea of debt-induced liquidity, pundits and policymakers boasted of a quick V-shaped recovery.’
Now we are witnessing in many countries a second-wave of the pandemic, in many cases only weeks after government officials boasted that coronavirus had been contained and that the economy could begin reopening. This, despite warnings from those more knowledgeable about the dynamics of a great pandemic that premature reopening of economic activity would greatly worsen the impact of a second wave of Covid-19, leading to repeated false openings followed by swift shutdowns of normal economic activity. These false starts and rapid lockdowns will actually worsen the negative impacts of coronavirus on the overall economy.
Now we are witnessing evidence that the pandemics is close to being out-of-control and spreading like wildfire in a growing number of countries, while sovereign debt , only months into the pandemic, is already at unprecedented levels. These factors further exacerbate the Global Economic Crisis now underway in tandem with the health crisis, with talk of a V-shaped recovery proving to be illusory, while a severe economic depression on the scale of the 1930s looks increasingly likely.
For the first time in “living memory,” Asia’s economy overall will shrink by at least 1.6% this year, according to the International Monetary Fund. The last projection from the IMF had a forecast of flat growth. The update shows that the IMF sees worsening data impacting all of Asia in the wake of the Covid-19 pandemic.
The IMF concedes that no region, including Asia, will be immune from the ruinous impact of the Coronavirus on the global economy. Yet, though the IMF is predicting a global economic contraction of almost five percent in 2020, it is still forecasting a V-shape recovery in 2021 in excess of positive five percent.
With Covid-19 running an unpredictable course, with signs of a second-wave already present, it is being excessively optimistic to hope for a speedy economic recovery. In fact, even the IMF states it will take years for the economies of Asia and other regions to fully recover, in spite of rosy forecasts for 2021.
