It is said that history repeats itself and the corona virus pandemic is a literal “living” example(at least until we have a vaccine). One last such major precedent was the Spanish Flu of 1918. Approximately 102 years later, records of the Spanish flu aftermath are still capable of inducing shudders . Much similar to that, the Corona virus has managed to manifest itself in sectors beside physical health, the second-most prominent and widespread being economically. A global recession was undeniably inevitable but the catch here is that the extent, severity and effects of the recession we are in are still difficult to forecast. Hence, economists did what we are all supposed to do when in doubt; look at precedents. The two major precedents being the Spanish flu of 1918 and the Great Depression of 1929, it is possible to build estimations by comparing the two phenomena with respect to our present scenario.
World war I had just ended when the Spanish flu started surfacing, leading to many army men returning home with the infection. Most victims of the flu were hence people between the ages of fifteen to forty. With cities turning out to be infection hubs, lockdowns were observed in major American and European cities. The effects of the flu were long term and led to low socio-economic conditions for years. The global GDP was estimated to be down by 8%.
Almost a decade after the flu pandemic, a stock market crash resulted in the Great Depression, largest recession to be experienced by the world. The global GDP growth rate fell by a whopping 15%. Unemployment rose to more than 30% globally and international trade declined by 50%. While some countries were still able to recover in a year or so, some struggled right up to the second world war.
The current recession is predicted to be the worst since the Great Depression and worse than the more recent financial crisis of 2008. With a global lockdown shutting down businesses and production for months worsened by rise in unemployment, majority of sectors have suffered a blow that would not be easy to recover from. Even with the gradual opening up of businesses and services, things will naturally take time to get back to normal. Take the restaurant industry for example, eateries and restaurants already incurred huge losses due to the lockdown. Many even had to shut down permanently as they couldn’t keep up with unavoidable costs like rent. Now, despite the strict restrictions on seating and functioning of restaurant spaces, most are still struggling to get even 10% of their original customer count . The virus has made people apprehensive and looks like most service and entertainment sectors are bound to suffer for a long time even when the pandemic is gone. And this is just the tip of the iceberg.
The effects of the current recession are more widespread than those of the Spanish flu and Great Depression. The latter majorly affected the West ,while currently almost all countries are struggling equally. Increased global dependence has affected trade drastically. To top it off, some countries like India were already on the brink of a recession when the pandemic hit and worsened the situation further. The IMF has predicted a -3% global growth rate for this year with some developed and developing countries having a growth rate as low as -6%. Given the fact that many sectors are still under partial/complete lockdown globally and that we are yet to find a vaccine, how we would be moving ahead to tackle the recession is difficult to figure out. Most countries are also expecting a second or third wave of the virus and consequently, lockdowns again. To put things into perspective, the global GDP rates during the Spanish flu, Great Depression, and the Covid Pandemic are 8%, 15% and 6% (estimated)respectively.
However, the dismal science is not that dismal either. On the bright side, as compared to the global economy during the Great Depression, we have increased global dependency in terms of trade and welfare organizations. Countries have better social security nets than they did then. Most countries have already announced support packages to deal with the pandemic. Hopefully, with an ensured global cooperation, we’ll be able to make sure that the current recession is a short lived one.
This article has been written by Shriya Chavan for The Paradigm
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