Recession or Depression: Where is COVID-19 Leading Us

Recession or Depression: Where is COVID-19 Leading Us

By
Vennela Boppa,31-Mar-2020
covid-19-impact-financial-markets

The lockdown period is still continuing in the virus affected countries. There still is a decline in financial markets and in other sectors as well. Now the whole world is paused and staying back at their homes following self-quarantine. If this scenario prolongs further, there raises a question: are we heading towards recession or depression?

    What is a Recession?

    A recession is an economic fall that lasts more than a quarter. A significant drop in economic indicators like the gross domestic product, income, employment, manufacturing unit, and retail are the five key factors that declare a recession.

    What is the Economic Depression?

    An extended period of recession that lasts for more than a year is considered to be an economic depression. This is more severe than a recession. During this period there would be drastic shrinkage in different financial elements like price deflation, banking, and financial crisis, also unemployment increases largely as companies lay off the workforce in high numbers.

    How COVID-19 is a Cause of Recession?

    As to prevent the widespread of the coronavirus, the major cities and countries declared a lockdown period. In top economic countries, quarantine time is taking a toll on global financial elements. China, the world's second-largest economy showed a sharp fall in the gross domestic product on the manufacturing and retail sectors majorly. In these countries, the financial crisis and price deflation have already started in various sectors. Financial sectors largely, witnessing a periodic downfall in stock markets, shares and commodities early this year. The spread of the virus in the US is already taking a toll. If the quarantine period extends for the next few months, it might result in a great downturn of the global economy. If the crisis continues, this would hit employment and individual income. If unemployment rises consumer purchases diminish even more.

    coronavirus-effeccts-recession-depression

    How does the Coronavirus Recession Cause Economic Depression?

    Due to the rise of cases among different places in the world, governments initiated bans on social gatherings. Since a month people stopped visiting stores, supermarkets, booking restaurants, purchasing electronic or automobile goods, looking for new homes, planning for vacations hence these activities affect businesses as a result industries cut investments, corporations that intended to open new factories would step back this concludes fall of economic growth of a country this impacts GDP as well. This might lead to another depression, after 1929 which was considered as the first great depression so far.

    Benefits of Recession and Financial Depression

    Generally, there is only one benefit out of this, is stable inflation. Inflation is usually balanced by slowing down the economy without triggering a recession.

    How the World can Recover from COVID-19 Recession or Depression?

    When the first great depression happened in 1929, the federal bank and other central banks stimulated the economy with monetary policy. When a recession occurred in 2008, banks cut down interest rates, pushing liquidity and credit rates. The same is happening now in 2020, already many banks have lowered their interest rates. Few banks postponed the EMI debts to a few months. The IMF says it is ready to lend up to $1trillion. This helps the world to recover soon from the financial crisis.