The Coronavirus started as a terrible illness, yet no one knew it would turn into such a global issue in only a short timespan. In the blink of an eye, the entire world economy collapsed, and millions of people lost their jobs.
The prognosis is the following: there is an impending economic disaster coming our way, that much is certain. One by one, countries will face the inevitable truth — a recession. In fact, Japan was the first to take the cat out of the bag and announced that its economy had shrunk 3.4% in the first three months of 2020.
According to recent stock market crash statistics, the worst stock market fall in history was the one from 1929 (a staggering 86% loss), whereas the most recent (2008) market crash recorded “merely” a 56% fall. Whether the incoming recession will be worse than either of these or just somewhere in between is still unknown.
The EU, for instance, warned its citizens that the crisis might be the worst one yet. They predict the economy will shrink by approximately 7.4%, which will undoubtedly spell the loss for millions of jobs.
But, before we get ahead of ourselves, let’s take a deeper dive into the matter.
The Worst-Case Scenario
Some people estimate that the pandemic will subside by the end of 2020 and that things will slowly go back to normal after that. Others are not as optimistic.
Another thing worth mentioning is the possibility of a second wave of the disease coming back to haunt us in the very near future, and then everything starts all over again. In other words, we’ll need to learn to live like this and adapt for the time being.
Furthermore, even if the pandemic dies down by the end of 2020, it will take the economy years (perhaps even decades) to get back to its pre-COVID Golden Age.
As a matter of fact, the UN announced their prediction regarding the worst-case scenario, saying that if there’s a second wave, and the lockdown continues into the third quarter of 2020, global growth will shrink to 4.9%, and come 2021 it will shrink a further 0.5%.
On the other hand, the best-case scenario is: the market recovers with a V-shaped line. Meaning, once we hit rock bottom, the economy skyrockets all the way back to its former glory.
In this scenario, the coronavirus-induced quarantine should end before the third quarter even begins, and hopefully, a vaccine will be developed by then. Still, this doesn’t mean that there won’t be any rough times ahead. The recession is all but imminent. Yet, the outcome will be much more bearable than what we outlined in the worst-case scenario.
The latest information states that the American economy is going to shrink by an astounding 42.8% between April and June. No matter how fast and how successful the recovery is, these numbers will take their toll.
Hence, we can expect the economy to bounce back in 2021, and the crisis will end with global growth of just 3%. And as the IMF predicts, it should recover to 5.8% by the end of that year.
The Most Probable Scenario
The worst-case scenario will be a total disaster — hence the name. The L-shaped recovery will bring about immense political turmoil, as well as an enormous unemployment rate. The Great Depression of 1929 was so influential that millions of people died in the wars that followed (and were an indirect result) of said crisis.
The V-shaped scenario is also very unlikely, and even the most optimistic of experts mention this as just a theory. We’re already six months into 2020, and there’s no sign of a vaccine yet. Without it, we can’t expect a fast recovery.
The most probable scenario is a U-shaped one. The market will hit the lowest point and will stay there for some time. Then it will take a speedy recovery before it gets back to where it was pre-2020. This outcome can be expected somewhere in 2021 and only after a vaccine is developed.
Whatever happens, you can be sure that 2020 will go down in history as one of the most peculiar years in history from an economic aspect. A time when investments can rake in tons of profit, but at the same time, it may result in significant losses. Whoever chooses to invest during these times, must handle things with great caution.