Last week, a panel of 41 respected economists convened by Reuters agreed the world is now in a global economic recession due to the destruction of demand, supply, and jobs by the raging and global COVID-19 pandemic.
Now, however, an increasing number of economists and financial analysts are being forced to admit an even more devastating economic depression might now be on the horizon. The world's last great economic upheaval -- the Great Depression of 1929 -- devastated the whole globe and took about 10 years to recover from. The Great Depression was also one key reason that ignited World War 2.
The massive unemployment worldwide caused by social distancing and lockdowns due to the COVID-19 pandemic is now forecast to trigger a far deeper recession than first estimated. Optimistic talk about a "V-shaped" recovery where economies see sharp spikes in demand and post record economic growth has been replaced by the grim reality of a weaker and more prolonged "L-shaped" recovery where millions will still remain unemployed.
"The V-shape recovery theory has been significantly challenged, as investors correctly entertain the idea of a far more protracted recovery," according to Citigroup in an analysis written earlier this month.
A survey of leading academic economic experts across Europe found a majority agreeing a major recession will be the likely consequence of the uncontrolled COVID-19 pandemic. These experts also believe a long depression will follow this deep recession.
Economists forecast the long duration of the oncoming recession and depression will be exacerbated by the inability of finance ministries worldwide to respond effectively and collectively to the COVID-19 crisis.
Two-thirds of economists told researchers at Chicago University it remains "highly doubtful" finance ministries will respond effectively to the potential damage from Covid-19.
The global economy can now expect zero growth in 2020 based on revised estimates compared to the former forecast of a 2.5% growth. The forecast for zero growth will mark the second-weakest year for the global economy in almost 50 years of comparable data. Only 2009, when the world was reeling from the effects of the global financial crisis, will be worse.
Antonio Guterres, Secretary-General of the United Nations, has warned a global recession, "perhaps of record dimensions," was a near certainty.
"This is a moment that demands coordinated, decisive, and innovative policy action from the world's leading economies," said Guterres via a video conference. "We are in an unprecedented situation and the normal rules no longer apply."
World equity markets are seeing routs triggered by COVID-19 volatility not plumbed since the 2008 financial debacle, and investors are rushing to the U.S. dollar and Treasurys as a safe haven. The U.S. economy is now expected to shrink by 14% in the second quarter of this year, according to J.P. Morgan. China's economy is expected to fare even worse -- its economy is forecast to plummet by 40% in the first quarter.
