A month ago, the idea of a global recession in 2020 would have seemed absurd to most, and unlikely even to those in the know. Coronavirus was a problem in China that, much like Bird Flu, Swine Flu and SARS, would stay localised and affect only a small population of a country on the other side of the world. At worst, the problem could be managed by a small policy shift from the central banks of affected countries.
Today, the world is dealing with travel bans, complete cancellation of large gatherings and events, and of course, the stock markets are in freefall. Even with all of this happening, central banks and supposed financial experts told us only a few days ago that this will be nothing more than a temporary dip, that will be solved by returning to business as usual in a short amount of time. Does anyone remember the beginning of the 2008 Financial Crisis when we were told that the issue was localised to the selling of subprime mortgages in the US? Look how that turned out.
The idea of a short, sharp recovery or ‘V-shaped recession’ became all the less likely earlier this month when The Dow Jones Industrial Average in the US fell by 10%, which was its largest one-day percentage drop since the crash of October 1987, and the FTSE 100 in the UK posted similar results. Currencies around the world saw their values plummet and the accompanying mass sell-off of stocks as seen on trading charts was described by financial experts as flipping a switch from ‘uncertainty’ to ‘panic’.
Working From Home, Do They Know Something We Don’t?
Even some US senators, who were supposed to be exhibiting a steady hand to set an example to the rest of the country, began offloading stocks in an effort to save some of their investments. The senators in question are facing criticism and accusations of insider trading, but did they really know what was going to happen before the rest of us?
Republican Senator Kelly Loeffler from Georgia purchased somewhere between $100,000 and $250,000 worth of shares in Citrix, a software company that deals in remote working, back in February. This was long before the concept of mass working from home was even mentioned. Interestingly, shares in Citrix are up nearly 20% from their value this time last year, suggesting that businesses that facilitate working from home are set to make gains from the pandemic.
One way that many businesses may stay afloat and potentially avoid the worst effects of the recession is to have as many of their workers as possible working remotely. Managing to walk the fine line between total self-isolation and continuing with business as usual will allow the economy to keep ticking over in certain sectors. Office workers in a variety of industries are perhaps the most suited to this new arrangement, closely followed by universities and other education-providers who will find the transition to video-based classes and Zoom-enabled meetups not too much of a challenge. It’s widely known that remote working has been shown to increase productivity when it’s by choice, but the jury is still out on whether forced working from home en-masse will see similar results.
A Poor Outlook
Whilst hope is certainly not totally lost, and there are a few lights at the end of the tunnel, experts are now talking about mitigating a recession that is already here rather than how to avoid one. China’s economy – the second biggest in the world, is unlikely to recover in the near future from the beating it took at the hands of COVID 19. Lack of spending has lowered the GDP outlooks for many countries, including the mighty USA, which according to Goldman Sachs will see a predicted 5% shrink between April and June.
In terms of the world economy as a whole, the number of experts who still believe a recession is uncertain is becoming a smaller and smaller club. Gita Gopinath, IMF Chief Economist, doesn’t think the economic effects of Coronavirus will stick around for long, but many, like Former US Government Economist, Kevin Hasset, say the chances of a long-term global recession are “close to 100%”.