Sharp Global Recession Under Cover of Coronavirus

The imbalances in the global economy are now more serious than those that spilled over into the 2008-09 crisis.

According to the classical theory of economic cycles, very clearly stated by Marx in his work “Das Kapital”, economic development under capitalism consists of cycles of four phases. These phases are:

  •  recession (recession, crisis);
  •  stagnation (stagnation, depression);
  •  revitalization;
  •  recovery (continuation of the recovery phase from the moment when the pre-crisis level of economic development is reached).

The deepest and longest global recession over the past century was the one that began in the United States in October 1929, and in 1930, it swept across the world and continued until 1933.

Great Depression 1

In recent decades, serious deformations of the economic cycle have occurred. Everyone remembers the global financial and economic crisis of 2008-2009. Then came stagnation, which previously usually lasted as long as the crisis (recession) itself. However, now the calendar year is 2020, and we have not seen the transition from the stagnation phase to the recovery phase (I’m talking about the global economy as a whole. In some countries, the economic cycle may look different).

Last year, analysts and ordinary market participants came to the conclusion that we would not see the recovery phases that everyone had been waiting for in the last decade. Moreover, many forecasts appeared that promised a global economic recession in 2020. The global economy now has more imbalances than before the crisis of 2008-09. In particular, the total debt of all sectors of the US economy exceeded 300% of GDP – approximately the same debt situation in other centers of the world economy — the European Union and China.


If you think only the US will suffer, think twice. We live in a very interconnected world, therefore, it will impact all economies. However, international organizations are hesitant to recognize the high likelihood of a recession this year. Thus, the International Monetary Fund predicted an increase in world GDP in 2020 by 3.4%. On January 20, the IMF revised its forecast, but only by 0.1% downward. The World Bank gave a more cautious forecast for 2020 – a 2.4% increase in GDP, but in January adjusted the estimate by 0.1 percentage points upward.


How long could they hide the real numbers? 

The technique of such forecasts is primitive. Simple extrapolation is done, and the indicators of changes in GDP over several years are taken as the basis. According to the results of last year, as calculated by the IMF and the World Bank, the picture seemed to be tolerable — GDP growth amounted to 3.3% (in 2018 – 3.4%). However, this indicator is crafty. How did they conclude on a 3.3% GDP for the entirety of 2019, when in the last quarter, and especially the last month of 2019, a number of large countries recorded significantly lower or even negative growths (i.e., recession)?

Almost everyone underestimated the intensity of the recession recorded in Japan in the fourth quarter of 2019, whereas it was serious. At first, the authorities estimated a decline of 6.3%, then it turned out that Japan’s GDP in the Q4 of 2019 was 7.1% lower than the GDP of 2018’s Q4.

We have an even more “rotten” situation in Italy. The third-largest EU economy has stagnated for several years. Last year, Italy’s economic development went downward – from quarter to quarter; it was getting worse. And at the end of the year, Italy’s GDP growth amounted to only 0.2%, i.e., within the limits of the statistical error.

The damping trend last year was also observed in the American economy. In the Q1 of 2019, GDP growth was 3.2%, then all other quarterly indicators remained the same and amounted to 2.1%. The attenuation is even more evident against the background of 2018, when, according to the results of Q1 to Q4, GDP growth amounted to 3.1%.

Who is the winner? 

No one! One might think that the situation of things would benefit a country like China for instance. To put this sentiment to rest, let’s take a look at a particularly curious situation in China, which is a “second world economy.” There has long been no recession, as well as stagnation. For more than three decades, the Chinese economy has been in a boom phase. Of course, China has not demonstrated ultrahigh rates of economic growth (exceeding 10%) in recent years. Even according to the official figures of 2019, GDP growth was above 6%.

However, there was a slight decline when figures were analyzed on a quarterly basis:

  • Q1 – 6.4% 
  • Q2 – 6.2%
  • Q3  – 6.0%
  • Q4 – 6.0%

Last year, Chinese and foreign experts predicted that, in 2020, it would not be possible to keep the country’s GDP growth at the level of 6%. And the party set a target of at least 6%. However, many experts predicted that in 2020 the country would slide from a boom phase to a recession phase. Still, the Chinese economy is capitalist (state capitalism) and cannot but obey the laws of the capitalist economy with its cyclical development. More frustrating is how the coronavirus panic suddenly seized the world. The virus appeared on the world stage at the very moment when the economies of several countries were already on the verge of transitioning into recession (and in some places, for example, in Japan and Italy, they were already crawling into it). The government has the opportunity to blame the recession on the coronavirus pandemic and, at the same time, resort to such methods of economic management, which in other situations, they could not use.

Repeated mistakes with bailout Stimulus! 

Let me remind you that after the global financial and economic crisis of 2008-09 various summits (G7, G20, and others) were held, at which solemn vows were made to no longer use some methods of dealing with the crisis. For example, it was agreed that the decision to allocate gigantic sums of budget money to save drowning banks was ill-advised (then the US budget spent about $ 1.5 trillion on such salvation). And now, with a unique crisis at hand — a hybrid of financial, economic and virus-humanitarian —, the use of any methods of control is permissible.


History has repeated itself! Already, the US is processing an emergency $6 trillion — a quarter of the country’s GDP — stimulus package to jump-start its economy and reduce the adverse effect of the coronavirus pandemic. Out of the $6 trillion bailout package, congress has passed $2.2 trillion into law, which will cover loan packages to businesses on the verge of shutting down as well as aids provided to individuals affected by the pandemic. 

Covid 19 Bailout 1

Reckless monetary policy

Even in the 1930s, authorities in Western countries did not declare a state of emergency. Unfortunately, we are yet to figure out the economic and monetary policy appropriate for a state of emergency. Regardless, policies are already being implemented. For one, the US Federal Reserve in March twice lowered the key rate ahead of schedule, without waiting for the next meeting of the Committee on open market operations.

What is behind the scenes?  

Rates are falling, and trillions of new dollars are being printed without any explanation. Rather, there is one explanation: this is necessary to deal with the consequences of the coronavirus pandemic. 

In actual fact, this is a cover for the desperate attempts of monetary authorities to prevent the global economy from sliding into recession. A closer examination of the situation at hand reveals that the Fed, the ECB, the central banks of England, Japan, Canada, Switzerland, and other countries’ responses to the economic strain follow the same pattern.

Despite emergency measures, a slide into recession is occurring. Even as the first quarter of 2020 comes to an end, a decline, according to preliminary estimates of quarterly and annual economic performance, will be recorded in many countries, especially in China. Here are the official figures for the first two months:

  • In January-February, industrial production in China decreased by 13.5%,
  • retail sales – by 20.5%,
  • fixed capital investments – by 24%,
  • the unemployment rate jumped to a record 6.2%.

Let me remind you that the last recession in China was recorded in 1976 (year-end). Now, analysts are inclined to believe that the worst recession in China will be in the first quarter. It may persist in the second quarter, although in a milder form. Possibly, the economy might recover in the second half of the year. No one, however, has a valid forecast for the whole of 2020. Nonetheless, analysts no longer argue with the fact that the annual GDP growth cannot be higher than 4 percent. This pessimistic projection is attributed to coronavirus.

Corona Virus didn’t cause the recession 

World Bank forecasts deep regional recession and the IMF sees pandemic causing a global recession in 2020, with a potential recovery in 2021. The cause and effect analysis is simply not true.

Almost all of them say that there will be a global economic recession. Let us make a reservation: For some time now, a tacit consensus has been reached in the expert community to conclude that a state is in recession only when the annual GDP growth rate is below 1.5 percent for at least two quarters.

A group of Morgan Stanley analysts, led by Chetan Ahya, noted that the global recession is now their “base case”, and growth is expected to slow down to 0.9% by the end of the year. A team of Goldman Sachs analysts, led by Jan Hatzius, predicts a decrease in growth to 1.25%. S&P Global made its forecast saying that global GDP growth will be in the range of 1.0-1.5%. The same agency, S&P Global, states that a recession is already taking place in the USA.

In addition to the coronavirus factor, the drop in oil prices has a strong negative effect on the American economy. Beth Ann Bovino, chief economist at S&P for the United States, expects US GDP to fall by 1% in the first quarter. The second quarter will be even harder, the fall could reach 6%. In any case, from the current definition of a recession (GDP growth of less than 1.5% in two quarters) in 2020, the American economy is heading towards a full-blown crisis. 


In conclusion, I want to note that these forecasts come from the smooth subsidence of economies. However, it cannot be ruled out that economies will enter a tailspin. And by the time worldwide results of the year are collated, a classical recession would have kicked in — global GDP will fall. The last time humanity experienced a classic recession was in 2009 when the world’s GDP fell by 0.8%.

Basic results: 

  • Higher unemployment, 
  • Lower wages and incomes, 
  • Panic and massive depression
  • Education, private capital investments, and economic opportunity suffers

Great quote by Matt Stoller says it all:

This isn’t a saving package — this a *direct* billionaire bailout with very dire consequences!!! 

To be fair, non-recourse means the “speculator” will make new loans to (e.g.) small businesses, and borrow against them from the Fed. But if the small business fails to pay back, the Fed would eat the loss, as it always does. One might not describe this as a billionaire bailout. 

However, Adam Smith once remarked that “no government has ever repaid its debt”, and today the same can be said of the overall multi-trillion debt resold to each other. 

Plutocratic heaven for people who control the printing machine

Unless we start shifting the paradigm, there will be no remedy. We will bear the consequences of the pathogenesis of greed. Greed is a form of our nature whether we like it or not. Egoistic maniacs who take the most important decisions can’t stop the machine at full speed. We are dealing with systematic global problems, not a local damaged economy. That requires dramatic changes. A reset, a reboot, call it whatever you prefer, the most important fact is: it starts with you and me. We ought to educate ourselves on this matter and start applying critical thinking instead of primitive consumption of public news.