It goes without saying that the world is facing an economic crisis as a result of the rapid spread of the Coronavirus (COVID-19) across the globe. The Coronavirus pandemic went from a health emergency to an economic crisis with the speed of light. The pandemic not only increased the numbers of confirmed and deceased people, but it also increased the chances of facing a global financial crisis and recession. At first, countries and governments thought that the virus might go away soon. Then the spread of the virus made companies send their employees to work from home during the Coronavirus outbreak.
Moreover, business owners dedicated themselves to discovering how to manage a business remotely. However, as the Coronavirus started spreading to other continents, causing deaths of too many people daily, all countries began wondering what might happen to the world’s economy. Discover more information about the global economic crisis and recession that are happening as a result of the COVID-19 pandemic by reading the most frequently asked questions below.
The Coronavirus pandemic has taken away a thousand people’s lives, and it has also affected many industries by causing the global economic crisis of 2020. Experts have been comparing this economic crisis 2020 with the recession from 2008/9. A DW article on Coronavirus shock vs. global financial crisis mentions that some of the experts believe that the global economic crisis caused by COVID-19 will be able to recover during the second half of the year, as long as the outbreak weakens by then. Nonetheless, the Coronavirus has caused immense damages to specific industries, mostly to the aviation industry and the oil industry.
During the global financial crisis and the SARS outbreak, the aviation industry did not receive damages such as these that are happening right now due to the Coronavirus situation. The aviation industry received the hardest blow by the COVID-19 pandemic causing all the air traveling to be pulled to a stop and most airlines to be exposed to a threat of bankruptcy.
Another industry that suffers the most from the Coronavirus pandemic is the oil industry. Experts expect that oil consumption throughout the whole world will face the biggest fall ever. Moreover, COVID-19 will also have a negative influence on traveling and will cause big factories to get shut down. The global financial crisis in 2008/9 caused a demand shock, but it did not have an immense impact like the economic crisis we are currently experiencing due to the Coronavirus outbreak.
Forbes published an article in which the National Bureau of Economic Research (NBER) determines the recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” The three most common causes of a recession are overvaluation of stocks, supply-side shock, and demand-side weakness.
These three factors are noticed in the world economy ever since the outbreak of the COVID-19 pandemic. The overvaluation of stocks usually happens after risky investments and after an increase in the interest rates. Moreover, when a pandemic such as Coronavirus causes a recession, the cause may be a supply-side shock in a situation when the virus results in lost productivity. And finally, the third cause of a recession is the demand-side weakness, which means that there is a lack of consumer confidence and happens when an inevitable shock is a cause for layoffs. A pandemic may cause layoffs, and if the countries do not have savings, the recovery afterward may be very challenging.
To determine that there is an economic crisis, companies and governments need to pay attention to the recession symptoms. The Coronavirus pandemic already caused the five most significant symptoms of recession all around the world. Therefore, companies must know how to predict a recession by recognizing these symptoms. That way, business owners can begin thinking of a solution to the problem as soon as they can. Read below the five significant recession symptoms that the Coronavirus outbreak already caused.
1. A Rise in the Unemployment Rate
The first symptom of an economic crisis is the rise in the unemployment rate throughout the world. In the last month, we have witnessed a rapid increase in the unemployment rate of workers in the aviation and oil industries, in the international trade and in businesses that include managing events, hotels or cruises, etc. This is especially noticeable through the cutting down of working hours or having them reduced to zero. Furthermore, workers who are getting fired from their job positions are another sign of the rise in unemployment. The act of firing employees or lowering their working hours will happen in every country hit by the Coronavirus pandemic.
2. Increase in the Numbers of Bankruptcies and Foreclosures
Another symptom of economic crisis is the increased number of bankruptcies and foreclosures, which will continue rising alongside the spread of the Coronavirus. As a result of the many people being unemployed and of the upsurge of debt load and house prices, every country will face bankruptcies, foreclosures, mortgages, and loans. Luckily, countries such as Canada that have been economically stable for many years will be able to take specific measures for helping the unemployed people who have lost their jobs due to the Coronavirus outbreak.
3. A Decrease in Interest Rates
When the banks are decreasing the interest rates, it is another sign that a recession is happening. The Bank of Canada, for instance, has reduced the interest rates to one percent. Moreover, it has announced that they may implement more interest rate cuts in the future to help people in need to get loans while the Coronavirus pandemic is still actual. Following the example of the Bank of Canada, other banks and lenders also decided to lower their interest rates on loans and savings accounts. To be more informed about the two policy interest rate cuts that happened in Canada as a result of the virus, follow the information published on the Bank of Canada website.
4. A Decrease in Consumer Spending and Confidence
When facing an economic crisis, one of the recession symptoms is the decrease in consumer spending. In other words, The Coronavirus outbreak increased the expenditure on food and products needed for the household. However, consumer spending has decreased due to social distancing and self-isolating measures throughout the world. Besides, the consumer confidence index in every country will decline as a result of the reduction in consumer spending power.
5. A Descend of the Asset Prices
The final symptom of a recession is the descend of the asset prices, which are very high for a long time in countries such as Canada. The Coronavirus outbreak has endangered the prices of real estate and homeownership in a lot of countries. Canada’s federal government already prepared to buy $50 billion in mortgage debts so that they can protect the country’s financial system. Financial Post has published the news for the $50 billion paid in Ottawa.
It is evident that the COVID-19 pandemic has already caused a global economic crisis and has led to a recession. As soon as companies realize that they will face a major disaster, the faster they will be able to take precaution measures to lower the possibility of significant damages to their business. The first thing that business managers need to do is to reduce the risk investments after reassessing their company’s risk tolerance.
Due to the Coronavirus outbreak, the stock markets have already crashed, so company owners are advised not to make sudden moves. Instead, they should consult a professional and ask for guidance before making any crucial decisions. Managers who want to save a business from bankruptcy in time of recession or economic crisis, need to have an emergency fund that will be able to cover their company’s expenses for at least the following six months.
Tell us how you manage your company during this recession and the global economic crisis of 2020. Have you prepared ahead of time, or have you just started taking specific steps at the last minute?