Catastrophic unemployment and large-scale crisis: how will the pandemic affect the U.S. economy and around the world

The coronavirus that spread from China, has already infected over 300,000 people in the world. However, the spread of the disease is also very serious impact on the economy of different countries around the world, writes the BBC. The Organization for economic cooperation and development has said that the world economy will need many years to recover from the pandemic.

Катастрофическая безработица и масштабный кризис: как пандемия влияет на экономику США и всего мира

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The Secretary-General ángel Gurría told the BBC that now the economic consequences of the spread of the disease are greater than just a financial crisis. According to him, to believe that the affected countries will be able to quickly recover your economy is “wishful thinking”.

World stock markets under attack

Changes in equity markets, where buy and sell shares of companies, not only affect the companies and traders. They affect investments and to retirement and other savings in many countries, for example, pension funds often invest clients ‘ money in securities.

All the major indexes of leading stock exchanges of the world in Japan, UK and USA have fallen substantially since then, as at the end of last year, the disease began to spread.

Since the beginning of the new year the FTSE fell by 34.1%, the Dow Jones Industrial Average by 31.1%, and the Nikkei — by 28.7%.

The American Dow Jones and the FTSE has experienced a record decline for 30 years since 1987.

These figures mean: investors are afraid that the spread of coronavirus stop the growth of the economy, and the actions by governments will be insufficient to prevent the spread of the disease.

In response, Central banks in many countries have begun to reduce interest rates to make money cheaper, and loans — affordable. In theory it will also support consumer demand.

Among those who went to the reduction of the discount rate of the Federal reserve and the Bank of England.

Tourism is on the verge of collapse

With thousands of canceled flights, trips and holidays, the tourism industry suffered huge losses.

Governments around the world imposed a ban on travel to contain the spread of the virus.

EU 30 days closed its external borders to all who are not citizens of the member countries. This is an unprecedented step.

In the United States has imposed restrictions on flights from Europe.

In Britain, estimate that over the year from September 2018 to September 2019, the country was visited by 415 000 tourists from China. According to VisitBritain, Chinese tourists would normally spend for a trip three times more than the average. Their “average bill” in Britain was equal to 1680 pounds.

Fear to be infected by the coronavirus and the government’s calls to stay at home have disastrous consequences for the hotel and restaurant business.

According to OpenTable, in mid-March this year compared to the same period last booking to a halt. In Canada was reversed 94% of the bookings in Germany — 90%, UK 82%, US — 84%.

Chinese enterprises do not work

In China, where coronavirus spread around the world, production is falling since the beginning of the year.

But keep in mind: China produces a third of all goods in the world and is the world’s largest exporter.

The slowdown of the Chinese economy can even be seen from space.

The U.S. space Agency NASA said that the satellite observation of atmospheric pollution indicate a significant decrease in the content of nitrogen dioxide over China. “At least partially”, the researchers say, is due to a significant slowdown of the economy due to the outbreak of coronavirus.

Stop production struck supply chains of several global giants.

“Safe” investments, and oil falls

During each crisis, investors prefer safe assets. Among them, gold has always been considered absolutely reliable. By March, gold prices have steadily increased.

But now investors are so unsure of how events will unfold and what might be the consequences for the world economy that has even fallen gold prices.

In addition, the price of oil fell to its lowest level in nearly 20 years — since June 2001.

Investors fear that the further spread of the virus will lead to a slowdown in the global economy and, consequently, reduced the demand for oil.

In addition to the coronavirus oil prices pulls down and the dispute between OPEC and Russia.

Growth stopping

Economic growth brings more wealth and more new jobs.

According to the Organization for economic cooperation and development (OECD), because of the coronavirus pandemic, global economic growth may be the lowest after the crisis of 2009.

If in November, the OECD predicted that in 2020 the global economy will grow by 2.9%, now forecast to have deteriorated by half a percentage point to 2.4%.

In case of a pandemic coronavirus will last longer and will have serious consequences when businesses remain closed and employees will stay at home, in 2020 the world economy could grow by only 1.5%.

Unemployment in the U.S. could be catastrophic

According to numerous economists, the flow of leave in connection with quarantine and disease will easily beat all previous records, writes CNBC. The number of applications for unemployment benefits that have yet to be filed, destroy the standards even during the worst moments of the financial crisis and recession of the early 1980-ies. Bank of America predicts a total of 3 million applications. Expected so depressing figure is that the administration trump, according to several media reports, asked the officials to postpone the publication of accurate data.

Although the overall unemployment rate is unlikely to approach to 24.9%, as it was during the great depression, he may be the highest in nearly 40 years, which is unthinkable for the labour market, which was on top most recently in February. Job losses will be calculated not in the thousands or even hundreds of thousands, but rather millions.

The worst month in terms of job losses during the financial crisis were 80 000 in March 2009. According to some forecasts, in April 2020 could be 5 times worse. Forecasts for the month ranged from 500,000 to 5 million. From the way the labor Department conducts sampling, the March employment report non-farm payrolls probably will not reflect the worst picture of layoffs. These numbers will appear in the weekly unemployment figures.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, sees the possibility of loss of 5 million jobs in April alone.

“We never imagined that we write anything like this, said Shepherdson in the letter. — Shock is so strong that the politicians will have no choice but to connect a lot more incentives than currently under discussion”.

When all is said and done, unemployment will reach 10.6% and will affect 17.9 million Americans, or about 12 million more than in February, according to the forecast of Steven Blitz, chief economist of the US in TS Lombard. The current unemployment rate is 3.5%, the lowest figure for the last 50 years. If Blitz is right, unemployment will reach its highest level since December 1982.

The SurveyUSA study showed that 14 million people have already experienced layoffs, while 2% of U.S. workers have lost their jobs. The good side: the Towers Watson survey showed that 52% of employers, leaving employees temporarily without work, will continue to pay them.

One of the highlights of this scenario is that most economists still expect that the recession will be short compared to other recessions, and the worst news is expected ahead.

“As the return of socialization and the reopening of closed enterprises the economy will look more typical, says Blitz. Given a “regular” downturn, which was less serious due to the planned [$1 trillion] budget expenditures, the unemployment rate will fall within a moderate recession, probably by the end of the year to 6%”.

“It is planned, organized by a partial shutdown of the US economy in the second quarter. The overall goal is to keep all households and businesses spend… It’s a huge shock and we are trying to deal with it and keep it under control”, — the President of the Federal reserve Bank of St. Louis James Bullard explains his opinion about the fact that the unemployment rate in the US could reach 30% in the coming months, writes Market Watch.

If his gloomy forecast is confirmed, unemployment will be worse than during the great depression, and three times worse than the recession of 2007-2009. Bullard also said he expects an unprecedented collapse of GDP by 50%.

According to him, if you take action, you can quickly restore the situation to normal.

“I would call the third quarter the transitional, and the next six months is strong enough, as Americans are increasing consumer demand. This quarter may be the time of the surge,” said he.

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