Sudden danger

A few months ago, late into 2019, no one would have imagined we may be standing today at an economic spot which according to the World Bank is looking bleaker than the Great Depression collapse which lasted from 1929 to 1933 and played a part in plummeting the world into war. The World Bank has said that the Covid-19 pandemic has created a ‘swift and massive shock’, causing the broadest collapse of the global economy since 1870. The Bank says that, despite unprecedented government support, the world’s economy is expected to contract by 5.2 percent this year alone and the number of countries suffering severe economic losses means the recession will be worse than anything experienced over the last 150 years.

The details of this impending recession are laid out in the World Bank’s latest Global Economic Prospects report. The reading is sobering. It states the crisis will leave deep and long-lasting scars, drive 70 to 100 million people into extreme poverty and affect thousands of businesses. While the World Bank has suggested there could be an economic rebound in 2021, the warning by medical experts of a second wave of the coronavirus would obviously undermine this and see a wave of defaults. The sheer magnitude of the disaster is difficult to fathom. The worst case scenario projected by the World Bank would mean an eight percent contraction, although other experts say this could be much worse.

China is the only country in the world still seeing modest growth this year. But its economy has slowed down and this will hinder recovery in developing nations, especially those which export commodities. While China could see a GDP growth of one percent, the forecasts for the rest of the world are far grimmer. The US could see a -1.6 percent decline, Europe -1.9 percent, Japan -6.1 percent and in other nations things could be even worse. The contractions are not as bad as those experienced during the Great Depression, when a 14.5 percent decline was felt. Still, the risks are extremely high with no one able to forecast when the pandemic will end or what the future holds for various nations. In our own country, all around us we can see growing unemployment and rising poverty as people lose jobs and businesses are forced to shut down. In addition, the cut in interest rates means savings in Pakistan have been effectively slashed even as inflation continues. This is one dimension of the crisis. In other countries, it takes slightly different forms. Debt levels are already at a historic high and economists point out that the deep recessions triggered by Covid-19 could take many years, or even decades, to recover from.