The ‘Great Fall’ and the road to recovery

A comparison of the current economic environment with past recessions speaks to the severity of the shock produced by the pandemic and the global efforts to contain it. I use the United States as my example in the illustration below, but the story is similar around the world. The shock to economic growth, and to employment as well, from pandemic-containment efforts make even the 2008 global financial crisis seem insignificant.


An unprecedented shock to U.S. GDP

Sources: U.S. Bureau of Economic Analysis. April 2020 data point is Vanguard’s forecast for second-quarter U.S. growth.


Yet comparisons with the Great Depression also seem inappropriate; its economic shock lasted four years. Instead, I might characterize this period as the “Great Fall.” Although the current shock is severe, recovery can begin sooner than with past recessions, once the biggest health risks are deemed to have passed sufficiently that businesses can resume operations.

How growth

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IMF Predicts Worst Slump Since Great Depression

The global economy will likely suffer its worst contraction this year since the Great Depression due to the coronavirus pandemic, with prospects for a recovery in 2021 shrouded in “extreme uncertainty,” the International Monetary Fund warned Tuesday.

In its latest World Economic Outlook report, the IMF said it now expects global gross domestic product to contract by 3% in 2020 — a downgrade of 6.3 percentage points from January 2020, when it forecast growth of 3.3% for the year.

The revised forecast assumes the pandemic and the required containment resulting from it peak in the second quarter for most countries and recede in the second half of this year.

“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” Gita Gopinath, the IMF’s chief economist, said in the report.


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