The Prologue to “#2020recession”.
How a malicious virus outbreak is paving the way for the next Recession.
Invisible to the naked eye, yet wrecking havoc around the world causing turmoil and destruction in its way, the malicious virus is out to co-exist.
We’ve already witnessed its share strength taking the lives of thousands in its throws, with no sign of it giving up any time soon but planning to stick around as long as it can.
Its even been on the offensive, upsetting oil plans that were to relieve the economic pressure but instead giving rise to the Saudi-Russian oil war in an attempt to cripple our efforts and throw us deeper into the abyss.
This virus, named covid19 no doubtedly is on a mission. Sacrificing world economics to its knees, as it establishes itself, a place to co-exist with us.
Like most of you who’ve been affected by covid19 in some way or another, I too have felt its impact. In fact, everyone has.
For the last two weeks, I have been working from home entering my third week and just recently, my country, New Zealand is on a nationwide lockdown (day four as I write this) for four weeks in an effort to overthrow the virus outbreak.
As of writing this, we’ve just had our first death case announced, with 63 new cases added to our total of 514. With a population of around 4.8 million, the number is alarming for a small economy but looking at the bigger picture, in some ways fortunate that we have the ability to control it, leveraging our remoteness in the world to our advantage which would otherwise be different if we tight-knit with neighbours.
Compare that to the United States of America. There is a lot of evidence to suggest that there won’t be a short-term probation. In fact, far from it as the total number of cases surpass China at an alarming rate and now we find the unemployment benefits rise sharply and reach about 3.28 million applications in the space of about a week as business’ feel the pinch as the outbreak makes its mark.
So, with the covid19 outbreak holding us as prisoners, what ripple effect will this have on our world-wide economy?
The consequences are inevitable and yet unavoidable and Monday 23rd March 2020 was a testament to that. We saw the markets take a sharp fall that gave us all the first blatantly obvious clue of what was on its way- the recession we’ve been expecting…
According to Bloomberg Economics, they’ve created a model to determine America’s recession odds. It has reported that the chance of America’s recession within the next year now stands at a looming 53%, significantly 29% higher than the 24% seen in previous months.
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So, where are we?
Typically from the time that we begin to see a slowdown in sales from worldwide companies to the time where we experience massive layoffs, defaults on loans and bankruptcies, it can be anywhere between two and 24 months.
The Great Recession began in December of 2007 but it took until September of 2008 in order for the worst parts of the recession to be felt and it was in March of 2009 when things were at their worst. That’s a period of about 15 months in order for the recession to hit rock bottom.
Even though we may not experience an economic downturn in the next few weeks, we will almost certainly experience some sort of negative consequence in the next 24 months.
The Great Recession might not be the best comparison for what we’re going through today because that was caused by a combination of banks, insurance companies and investors that created massive flaws in the financial system. The most comparable economic downturn to the one that we are seeing today was probably the recession of 2001, except the one that we’re going through today is on a much larger scale.
In 2001, there was:
a rapid drop in stock prices after half a decade-long bull market,
there was also a crisis that slowed down the world’s economy which was 9/11 and,
the world saw a temporary ban on air travel in many countries throughout the world.
Now, these aren’t the exact same as to what we’re seeing today but it is the most comparable recession in terms of causes. What we saw in 2001 was the effects of the recession that caused an eight-month economic downturn and doubled the unemployment rate to about 6% but what we’re seeing today is much more extreme than what we saw back then.
Economic effects…
Today we are seeing many more negative economic indicators. For example, today’s consumer debt is at a higher level than it was during the recession of even 2008 meaning that any economic downturn might cause people to miss payments on their debt and in turn create massive losses for lenders similar to what happened in 2008.
Stock market volatility which is usually a sign of investors being uncertain about an incoming economic collapse is actually at the exact same level as it was right before the 2008 recession which was extremely high. There are also two giant industries right now, the airlines and the cruise lines that are actually on the brink of bankruptcy and no one is really talking about this.
If people aren’t able to travel again in the next few weeks or a couple of months then we will see at least one major airline go bankrupt or get bailed out. It might even be all of them because its a result of an unpredictable change in travelling laws and regulations and not due to the incompetency of the industry.
Air New Zealand, our national carrier recently received a $900 million NZD ($544 million USD) lifeline already, a bailout from our government in an effort to keep the carrier alive. A Déjà vu echo of the 2001 recession where the government gave $885 million NZD ($516 million USD) for when the airline nearly collapsed during that 2001 recession.
We undoubtedly are witnessing before our eyes, the world change in many ways as it goes through its natural economic cycle. The world war still wages on against covid19 and will be for a while as there are no signs of it slowing down in Europe and the United States of America.
Fortunately for China, which are reporting a massive slow down in domestic cases, has given the world a glimpse of hope, having employed aggressive measures with little delay in combatting the outbreak head-on.
The question now lies… how different will the world be, on the other side and what will it look like.
Only time will tell.
