While the COVID-19 situation has already negatively affected the lives of people all over the globe, what is to come does not sound promising either. The world economy is going to face a critical time during the weeks and months to come, as Bank of America stated the following.
As Bank of America states in a note to its clients on Thursday, “We are officially declaring that the economy has fallen into a recession … joining the rest of the world, and it is a deep plunge.” They further state that “Jobs will be lost, wealth will be destroyed and confidence depressed.”
As of now, the stock market has been crashing over the past few weeks at a level it didn’t fall to since the financial crisis in the 1980’s. The stock market has officially reached a bear market, which is when the stock market falls more than 20%, the longest bear market in history being from 11 years ago.
Who will be affected the most, and to what extent?
While GDP is expected to contract by 0.8% for the whole year, the unemployment rate is expected to double, with a loss of one million jobs each month, and any new hiring slowed down.
Even during the last recession in 2008, it was the minority who was affected the most as the unemployment rate faced a downturn. The unemployment rate for Blacks in the US in 2009 was 13.1%, while at the moment it is 5.5%, and surely this is going to increase over the next few weeks and months.
Before coronavirus hit the US, unemployment rate was at a 50-year low, wage growth was strong, and small businesses were growing.
However, with businesses forced to shut down, and the cancellation of events to come in future, hourly and low-income workers will be affected, denying them of probably their only income.
It is the low-income workers who are affected the most, and even when things get back to ‘normal’, the companies will try to manage the situation by laying off the low wage workers, in an attempt to secure the employees in ‘higher’ positions.
What measures has the central bank taken?
The central bank has had to alter the target range for the federal funds rate to %0 – 0.25% in order to support the economy. This is going to badly affect, especially the people of a low income .
Even though the lowered interest rates of the federal funds will lower interest rates on loans and credit cards, it only applies to people and businesses who are permitted access to these loans and credit cards, which rule out the low-income category.
Why is this situation going to be harder than any previous crisis?
All this time the world powers were worrying about crisis situations like trade wars. Even though the world has experienced crisis situations like the swine flu, Ebola virus, and SARS, none of them required the complete shutdown of all businesses and economies.
This puts the world in a situation that it has never experienced before. This makes it hard to predict the real impacts the economy will suffer, and therefore the preventive measures to be taken, if any.
Organisation for Economic Co-operation and Development, in a March report, stated that it had to downgrade its 2020 growth forecasts for almost all economies.
What will life be like after the current situation?
Apart from the aforementioned impacts on the economy, people are for sure going to be hyper concerned about a lot of things, including public events, travelling, eating-outs etc. People have been deeply made aware of the seriousness of daily ‘ordinary’ acts and behaviours such as shaking hands, making contact with any physical object and touching one’s own face, to the extent that they have been made to stay indoors. This is definitely going to alter the way people view daily life after things get back to normal.
Even once the situation comes to a stand, people are going to be concerned about going to restaurants and public events, and other public places. This might directly affect businesses even when things get back to normal. But, this might also be temporary, given that people will want to go out after being made to stay home for a prolonged time period. Anyway, nothing is predictable at the moment, given the unprecedented nature of the situation.
I have been a passionate reader, writer and language learner since a child, and I ended up graduating from University of Peradeniya with a BA (Hons) in English. I am also a JLPT (Japanese Language Proficiency Test) Level N2 holder. I have 5+ years experience in content writing/editing, and also 5+ months experience in official/business translation in Sinhala Japanese and English Japanese.
Anyway, the boring stuff aside, during my free time, I sing, play a little bit of guitar, read, draw/paint, bake and play video games.