COVID19 impact: Global Recession

What is Recession ??

Recession is a macroeconomic term which basically defines a period of temporary economic decline due to reduction of trade and industrial activity, and generally results a fall in GDP. National Bureau of Economic Research (NBER), defines recessions as  a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

How it can effect the Economy ?

Major Economic Expansion from 2009 to 2019, Source NBER

Since the Industrial Revolution, the long-term macroeconomic trend in most countries has been economic growth. Along with this long-term growth, however,there have been always some short-term fluctuations when major macroeconomic indicators have shown slowdowns or even outright declining performance over time frames of six months, up to several years, before returning to their long-term growth trend. These short-term declines are known as recessions.

A recession is destructive. As the productivity, Industrial activity and trades reduces, it creates wide-spread unemployment. That's when it affects most people. As the unemployment rate rises, consumer purchases fall off even more. Businesses, Financial Institution can go bankrupt resulting more unemployment and the circle goes on and on.

As unemployment rises to its peak, people no longer able to pay their debts, mortgages and can even loss their shelter due to that. Young Professional could not get a job after college and stop their career before even starting. 

As a whole recession makes a massive dent on the economic balance of a country and it could take years and years to completely get recovered from it.

Will there be a recession due to COVID19 outbreak ?

With two-thirds of the world's population living in developing countries facing unprecedented economic damage from the COVID-19 crisis, the UN is calling for a USD 2.5 trillion rescue package for these nations. Many countries are in Lockdown state for indefinite period of time halting the Industrial growth as well as Treading. The renowned American multinational investment bank and financial services company Morgan Stanley expects a deep global recession in the first half of 2020 on the back of disruptions to the economy’s demand and supply sides following the outbreak of the novel coronavirus. Chetan Ahya, chief economist and global head of economics at Morgan Stanley states "Global growth for full-year 2020 will still see a decline of 0.6 percent year-on-year, past the 0.5 percent year-on-year rate of contraction we saw during 2008 and, on our estimates, the weakest pace of growth during peacetime since the 1930s,” Ahya wrote in the note. “At its core, the outbreak represents a substantial shock to incomes, and the impact on aggregate demand will ultimately create rennewed disinflationary pressures.”

As the coronavirus impacts global supply chains and consumer spending, investors are asking about the impact on global growth. Insights from our Chief Global Economist Chetan Ahya.https://t.co/FCxEHk8Msv

— Morgan Stanley (@MorganStanley) March 31, 2020

Do India need to worry about the COVID19 recession ?
According to the new analysis from United Nations Conference on Trade and Development (UNCTAD) even, the world economy will go into recession this year with a predicted loss of global income in trillions of dollars. This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India.
The report, however, did not give a detailed explanation as to why and how India and China will be the exceptions as the world faces a recession and loss in global income that will impact developing countries. It is a fact that China have a staggering amount of money more that 3 Trillion US dollar in their Foreign reserve Stock which can eventually help them to avoid this Global recession. For India the reason may be our little dependency on exports and huge consumer market. 

When Recession is declared ??

There exists six recession indicator which can signal a recession. They are

• Yield Curve
• Confidence indexes.
• Employment Data.
• The Federal Reserve Bank's recession probability model.
• Leading Economic Index (LEI) 
• Gross domestic product.(GDP)

The most important indicator is real GDP. That's everything produced by businesses and individuals in the United States. It's called real because the effects of inflation are stripped out.When the real GDP growth rate first turns negative, it could signal a recession. But sometimes growth will be negative then turn positive in the next quarter. Other times the Bureau of Economic Analysis might revise the GDP estimate in its next report. It's difficult to determine if you're in a recession based on GDP alone.

Benefits of Recession !!
The only good thing about a recession is that it cures inflation. Politicians, who control the  budget, try to stimulate the economy as much as possible through lowering taxes, spending on social programs, and ignoring the budget deficit. Financial institute are also could be advised to lower interest rate even to negative rate to control the overall cash flow in the market.