Catastrophic unemployment and large-scale crisis: how a pandemic affects the economy of the United States and the world

Coronavirus, spread from China, has already infected more than 300 people in the world. However, the spread of the disease has also extremely seriously affected the economies of different countries around the world, writes Air force. The Organization for Economic Cooperation and Development has already announced that the global economy will need many years to recover from a pandemic.

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The organization's general secretary, Angel Gurría, told the BBC that the economic consequences of the spread of the disease are already greater than just a financial crisis. According to him, to believe that the affected countries will be able to quickly restore their economies is “wishful thinking.”

Global stock markets under attack

Changes in the stock markets where companies buy and sell stocks affect not only the companies themselves and traders. They affect investments, as well as pension and other savings in many countries, because, for example, pension funds often invest clients' money in securities.

All major indexes of the world's leading stock exchanges in Japan, the UK and the US have fallen significantly since the disease began to spread at the end of last year.

Since the start of the new year, the FTSE is down 34,1%, the Dow Jones Industrial Average is down 31,1% and the Nikkei is down 28,7%.

At the same time, the American Dow Jones and the British FTSE experienced a record drop for more than 30 years - since 1987.

These numbers mean: investors are afraid that the spread of coronavirus will halt the growth of the economy, and that government action will be insufficient to prevent the spread of the disease.

In response, central banks in many countries began lowering interest rates to make money cheaper and borrowing more accessible. In theory, this will also support consumer demand.

Among those who went to lower interest rates, the US Federal Reserve and the Bank of England.

Tourism on the verge of collapse

With thousands of canceled flights, business trips and vacations, the tourism industry has suffered huge losses.

Governments around the world have banned travel to contain the spread of the virus.

The EU has closed its external borders for 30 days to all who are not citizens of the member states. This is an unprecedented move.

In the United States imposed restrictions on air traffic with Europe.

In Britain, it was calculated that in the year from September 2018 to September 2019, 415 tourists from China visited the country. Chinese tourists typically spent three times the average per trip, according to VisitBritain. Their “average bill” in Britain was £000.

Fear of contracting coronavirus and government calls to stay home have disastrous consequences for the hotel and restaurant business.

According to OpenTable, in mid-March this year, compared to the same period last year, bookings had virtually ceased. In Canada, 94% of bookings were cancelled, in Germany - 90%, in the UK - 82%, in the USA - 84%.

On the subject: 'Stay home': which US states have introduced isolation and what it means for residents

Chinese enterprises do not work

In China, where the coronavirus spread around the world, production has been falling since the beginning of the year.

But it is worth remembering: China produces one third of all goods in the world and is the largest global exporter.

The slowdown in the Chinese economy can even be seen from space.

The US space agency NASA said satellite observations of air pollution show a significant decrease in nitrogen dioxide levels over China. "At least in part," scientists say, this is due to a significant economic slowdown due to the coronavirus outbreak.

The production stop has hit the supply chains of a number of global giants.

“Safe” investments are in question, oil is falling

During every crisis, investors prefer safe assets. Among them, gold has always been considered absolutely reliable. By March, gold prices rose steadily.

But now investors are so unsure of how events will unfold and what the consequences may be for the global economy, even gold prices have fallen.

In addition, oil prices fell to their lowest level in nearly 20 years, since June 2001.

Investors fear that the further spread of the virus will slow down the global economy and, consequently, the demand for oil will decrease.

In addition to the coronavirus, oil prices are pulling down and the dispute between OPEC and Russia.

Growth can stop

Economic growth brings more wealth and more new jobs.

According to estimates by the Organization for Economic Co-operation and Development (OECD), because of the coronavirus pandemic, global economic growth may be the smallest after the crisis year of 2009.

If back in November the OECD predicted that in 2020 the global economy would grow by 2,9%, now the forecasts have worsened by half a percentage point - to 2,4%.

In the event that the coronavirus pandemic lasts longer and has dire consequences when enterprises remain closed and workers remain at home, in 2020 the world economy can grow by only 1,5%.

US unemployment could be disastrous

Judging by the numerous forecasts of economists, the flow of vacations due to quarantine and illness will easily break all previous records, writes CNBC. The number of applications for unemployment benefits that will still be submitted will destroy the standards set even during the worst moments of the financial crisis and recession of the early 1980s. Bank of America predicts a total of 3 million applications. Such a depressing figure is expected that the Trump administration, according to several media reports, asked officials to postpone the publication of accurate data.

While the overall unemployment rate is unlikely to approach the 24,9% it was during the Great Depression, it could well be the highest in nearly 40 years, which is unthinkable for a job market that was strong as recently as February. Job losses will not be in the thousands or even hundreds of thousands, but rather in the millions.

The worst month in terms of job loss during the financial crisis was 80 in March 000. According to some forecasts, in April 2009, everything could be 2020 times worse. Forecasts for this month range from 5 to 500 million. Due to the way the Department of Labor samples, the March report on non-farm employment is not likely to reflect the worst picture of layoffs. These numbers will be displayed in weekly unemployment figures.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, sees the possibility of losing 5 million jobs in April alone.

“We never imagined we would write anything like this,” Shepherdson said in an email. “The shock will be so great that policymakers will have no choice but to put in much more stimulus than is currently being discussed.”

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When all is said and done, the unemployment rate will be 10,6% and will affect 17,9 million Americans, or about 12 million more than in February, according to a forecast by Stephen Blitz, US chief economist at TS Lombard. The current unemployment rate is 3,5%, the lowest in 50 years. If Blitz is right, unemployment will reach its highest level since December 1982.

A SurveyUSA study found that 14 million people had already experienced layoffs, while 2% of US workers irrevocably lost their jobs. The Good Side: A Towers Watson survey showed that 52% of employers who left employees temporarily out of work will continue to pay them.

One of the positives of the scenario is that most economists still expect the recession to be short compared to other recessions, with the worst news ahead.

“As socialization returns and closed businesses reopen, the economy will look more typical,” Blitz writes. “Given the 'regular' recession, made less severe by the planned [$1 trillion] budget spending, the unemployment rate will fall into a mild recession, likely reaching 6% by year's end.”

“This is a planned, organized partial shutdown of the US economy in the second quarter. The overall goal is to keep everyone, households and businesses, intact... This is a huge shock, and we are trying to deal with it and keep it under control,” is how James Bullard, President of the Federal Reserve Bank of St. Louis, explains his views on the fact that the unemployment rate in the US could reach 30% in the coming months, writes Market Watch.

If his gloomy forecast is confirmed, unemployment will be worse than during the Great Depression, and three times worse than the recession of 2007-2009. Bullard also said that he expects an unprecedented fall in GDP by 50%.

According to him, if you take appropriate measures, you can quickly restore the situation to normal.

“I would call the third quarter transitional, and the next six months quite strong as Americans ramp up consumer demand. This quarter could be a surge time,” he said.

Read also on ForumDaily:

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My home is my castle: how to properly disinfect housing during a coronavirus pandemic

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