The consequences of the global economy after the end of the pandemic

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

Today it is already clear that the world is facing serious economic shocks. There are several scenarios for the development of events, some of which are relatively optimistic, but there are also those in which the entire world economy is facing a complete collapse. In any case, governments will have to make very difficult choices.

According to the chief economist of the Financial Times,

"This is the biggest crisis the world has faced in all the decades since World War II and the biggest economic disaster since the Great Depression in the 1930s."

The collapse in oil prices clearly indicates that the entire world economy is now going through a difficult time, and the likelihood of its recovery in the near future is extremely small. Oil demand is a good indicator of economic activity. Globally, its decline averages about 30 percent.

Recently, the International Monetary Fund published a report on the current economic "storm". According to the most optimistic scenario, by the end of this year, the world economy will be 6.3 percent less compared to forecasts made before the start of the coronavirus pandemic. However, next year the growth will be 2.6 percent higher than expected. In this scenario, the damage caused by the crisis would amount to about $ 3 trillion 400 billion. This is an amount equivalent to the GDP of all South American countries and one and a half times the total GDP of Africa. At first glance, the amount seems astronomical, but it is only one-seventh, or even less, of the capital that, according to analysts, will be hidden in offshore zones.

If tough isolation measures in some countries of the world last longer than until June, as well as in the event of a new wave of restrictions in 2021, according to IMF experts, the damage could be doubled, that is, 8 percent of global GDP or 6 trillion 800 billion dollars. In a less favorable but more realistic scenario, government spending in wealthy countries would rise by 10 percentage points to GDP, and government debt would rise by 20 percentage points. Of course, all this on the condition that the system generally withstands shocks and does not collapse.

In another report, the IMF warns:

“The current crisis is a very serious threat to the stability of the global financial system. After the outbreak of the Covid-19 epidemic, the financial situation began to deteriorate at an unprecedented rate, revealing some "cracks", weaknesses in the global financial markets."

Global debt is at a record $ 253 trillion today, equivalent to 322 percent of global GDP. According to many analysts, from a theoretical point of view, these numbers mean a time bomb. But what worries experts even more today is the particularly risky segments of the credit market. We are talking about the so-called junk bonds, loans to companies deep in debt, and individual lending in the private sector.

In the aftermath of the 2008 global financial crisis, central banks in developed countries pumped massive amounts of liquidity into financial markets through so-called “quantitative easing,” or monetary stimulus (QE) measures. Along with unprecedentedly low interest rates, this led to a huge financial bubble and the creation of many zombie companies and zombie banks.

The total volume of these junk loans has risen to an unprecedented level of $ 9 trillion, according to IMF analysts. If, as a result of the Covid-19 pandemic, in addition to the already mentioned trillions of damage, a collapse in the financial market begins, the 2008 crisis will seem like a slight fright compared to the upcoming events. The IMF quite rightly claims that "this crisis is unlike any of the previous ones."

So, there are three main scenarios: optimistic (which actually boils down to a large-scale depression), less optimistic, and full-scale disaster. However, in each of these scenarios, a huge amount of money will be required to stop the crisis and kick-start the global economic recovery.

The key question is where to get this money. In other words, who will pay the bill? It should be said right away that the choice is not great. More precisely, there are only two potential sources of funds: the working population and the super-large fortunes. The use of the first of them will lead to unprecedented mass impoverishment with all possible political consequences and will plunge the world economy into an even more severe crisis due to a further decrease in the purchasing power of the population.

Rana Forouhar, Associate Editor-in-Chief of the Financial Times, financial analyst, focused on this issue:

“If we want the capitalist system and liberal democracy to survive Covid-19, we cannot afford to repeat the mistaken tactics of 'shifting the damage onto the shoulders of the entire society and further enriching the small elite' that was used a decade ago.”

In other words, the coronavirus pandemic has shaken the foundations of the current balance of power. Financial and economic elites are forced to go on the defensive. An economic model where profit is prioritized over the well-being and health of the people is no longer viable and sustainable.

The time has come for fundamental social transformations for the benefit of the majority of people, which keeps our entire society afloat amid the coronavirus crisis. The introduction of a special tax to combat the consequences of the pandemic, of course, will be necessary, but this is only the beginning. It will take something much more ambitious. Either way, exciting times await us all.