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Is COVID-19 The Road to Recession?



Uncertainty is the biggest risk for business. The COVID-19 breakdown had resulted in a complete lock down in Italy, a work from home wave has emerged globally. Economists are predicting that global economy could enter the recession. People are not going out, avoiding social and business gatherings, imports and exports are declining, IPL, Tokyo Olympics and other sports events are postponed, oil price war between Russia and OPEC has started, maybe all these things are sign to a recession.

Although, recession in global economy is defined as a situation when economy faces two consecutive decline in GDP growth numbers. But right now, situation is more tough. The year 2020 started with World War III fear and Australia's bush fires, then came the coronavirus. This calendar year has not been that much good for our planet. Coming to the oil price war initiated between Saudi Arabia and Russia, crude oil faced nearly 18- year low price of $20.37 a barrel. Buying oil in cash and selling futures on NYMEX has given 2-3% risk-free returns. China is one of the biggest oil importers in the world, and due to shortage of demand (globally) the price war started. As people are avoiding going outside, schools, colleges, movie theaters, gyms, restaurants, etc are closed, oil demand is continuously falling.

Every industry in the globe is impacted due to the breakdown. Another major impact experienced globally after oil price war is the supply cuts by China, many of the goods imported from China had a sharp decline in exports. Steel, coal, machinery, automobiles, textiles and chemical industry are in tough times now. Economists predicted 55% chances of global recession in 2020, commenting that major reasons of the recession could be US-China Trade War and global economic slowdown, but no one even imagined that a deadly virus could be the reason. Global stock markets are indicating that recession is near. The central banks are reducing interest rates to all time lows, and continuously trying to generate money demand (both domestically and internationally). US government has decided to spend around $1 trillion to help the troubled businesses. Worst case scenario here is the down-turn effect continuing till 2021.

The World Health Organization declared COVID-19 as pandemic on 11th March 2020. This virus can be the biggest social, economic and health crisis for India after independence. Sales of hand sanitizers, hand soaps, medical supplies are now at its peak. Panic buying has resulted in supply shortages in many sectors. India is expecting supply shortage from rest of the world as major impact of the outbreak. BSE SENSEX and NIFTY 50 faced 950 points decline on 12th March 2020. After China, Italy had faced the worst hit by the virus, Italy recorded more than 15,000 cases on 12th March 2020.

The former RBI governor Raghuram Rajan commented, "Anything prolonged obviously creates more threats for the system. A long outbreak could also lead to a second round of consequences, where workers were let go and there was another fall in demand, eroding long-term confidence". The GDP growth in 2020 will be lower than that of 2019 because of the outbreak, everything now depends on how we react to the situations, maybe the worst is yet to come.
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