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The Bleak Great Lockdown Economy

Headquarters building of the International Monetary fund, Washington, D.C. Date between 1980 and 2006 Source: Library of Congress Author: Carol M. Highsmith

According to the IMF, the COVID-19 related economic downturn of 2020 is the world’s worst since the Great Depression.

On April 14, the International Monetary Fund released a grim outlook for 2020, making the COVID-19 related economic downturn, the Great Lockdown, the worst since the Great Depression.

The IMF predicts that the global GDP will contract to -3 percent, a reduction of 6.3 percentage points since they published their last projections in January. At that time, they had predicted global economic growth at 3.3 percent for 2020. In comparison, when the global economy contracted during the Great Recession of 2008, the global GDP shrank to -.1 percent. According to the organization, this qualifies the Great Lockdown of 2020 as the worst economic downturn since the Great Depression, during which the global GDP dropped 15 percent and U.S. GDP dropped 30 percent.

According to the IMF, this is the first time since the Great Depression that advanced economies and emerging markets have simultaneously experienced recession. They predict negative growth in advanced economies at -6.1 percent and emerging markets at -1 percent. The projected negative growth outlook for emerging markets becomes -2.2 percent when excluding China from the figure. During the Great Recession emerging markets did not experience negative GDP growth.

Future IMF Predictions

Provided that the pandemic recedes during the second half of 2020 and countries around the world take appropriate actions to protect their own economies, the organization cautiously predicts 5.8 percent global GDP growth in 2021. They note this will require the prevention of business bankruptcies and “system-wide financial strains,” while also preventing “excessive” unemployment.

Even so, their optimistic 5.8 percent projection for 2021 remains below prior estimates, and they anticipate a cumulative loss to global GDP in the range of 9 trillion dollars. Should the pandemic and its associated isolation period continue into the second half of 2020, worsening financial conditions and additional supply chain breakdown would likely result in a further 3 percentage point reduction. If it lasts until 2021, the global economy could contract by an additional 8 percent beyond current projections.


According to the IMF, a recession is a “sustained period when economic output falls and unemployment rises.” While the National Bureau of Economic Research (NBER), widely considered the expert in dating the onset and conclusion of recessions in the U.S., defines a recession 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.”

The IMF notes that in general, due to the U.S.’s status as the largest economy in the world, with strong financial and trade ties to most other economies, globally synchronized recessions generally link with U.S. recessions.

During the Great Recession, the rate of unemployment in the U.S. peaked at 10 percent in late 2009, resulting in 9 million jobs lost.  The unemployment rate did not return to pre-recession levels (4.7 percent) until 2016. The global GDP declined by less than 1 percent, while the U.S. GDP dropped 4.3 percent by the second quarter of 2009.


In general, depressions are characterized by their duration, large increases in unemployment, a decline in available credit due to a financial or banking crisis, decreased industrial output and increases in bankruptcies.  A severe recession resulting in GDP loss of 10 percent or more, or prolonged recession lasting three or more years constitutes a depression. Deflation, financial crisis, stock market crashes and bank failures are common features of depressions that are not typically seen during recessions.

Black Tuesday, the U.S. stock market crash in October of 1929, ushered in the beginning of the Great Depression in the U.S. A decade of high unemployment, poverty, low profits, deflation and declining farm income followed. Within one year of Black Tuesday, farmers began defaulting on loans and depositors withdrew their savings, forcing banks to liquidate their assets — in particular, by calling in loans.

During the Great Depression, U.S. production and the GDP decreased by 47 percent and 30 percent respectively, with unemployment estimated at 25 percent. Estimates put the drop in global GDP around 15 percent.

Unemployment in the U.S.

In March, unemployment in the U.S. rose to 4.4 percent after hitting a 50-year low of 3.5 percent in February. Over 22 million Americans have filed for unemployment over the past  month, with unemployment in the U.S. reaching 12.4 percent. In contrast, during the Great Recession, employment in the U.S. reached 10 percent — a decline of about 9 million jobs — between November 2007 and December 2009.

The Department of Labor released their weekly unemployment numbers on Thursday. Seasonally adjusted initial claims for the week ending April 25 totaled nearly 3.4 million — a slight decrease from the prior week’s 4.4 million initial claims. The unemployment rate for the week ending April 18 stood at 12.4 percent, up 1.5 percent from the prior week — the highest level in the history of seasonally adjusted unemployment rates.

States with the highest unemployment rates for the week ending April 11 included Michigan (21.8), Vermont (21.2), Connecticut (18.5), Pennsylvania (18.5), Nevada (16.8), Rhode Island (16.7), Washington (16.0), Alaska (15.6), New York (14.4) and West Virginia (14.4).

In an interview with CNBC on April 6, former Chair of the Federal Reserve under President Obama, Janet Yellen, had predicted that if we had a “timely” unemployment statistic, it would have likely reflected an unemployment rate up around 12 or 13 percent and rising. She further predicts a second quarter GDP annual decline rate of at least 30 percent.

Weathering the storm

As part of the stimulus package, the CARES Act included a loan fund to assist smaller businesses weather the COVID-19 storm. However, the first round of loans from the Paycheck Protection Program disproportionately favored larger businesses over small businesses, which exhausted the funds in record time. By exploiting loopholes in the language for the PPP, larger publicly held companies with less than 500 staff members at individual locations raked in millions of dollars earmarked for assisting small businesses with weathering the Great Lockdown. Some further exploited the process, increasing the funds they received by having two subsidiaries file.

A number of publicly held companies such as restaurant chain Ruth’s Chris, hospitality conglomerate Ashford Inc., Fiesta Restaurant Group, Shake Shack, and the LA Lakers have agreed to return the funds they’ve received. Several other companies including Digimarc and Polarity TE have justified the necessity of the funds for keeping their businesses afloat and refused to refund them.

Future Recovery

Even if this is just a recession, recoveries that follow recessions can enhance economic and income disparity, as happened following the Great Recession. This is due, in part, to the fact that when the unemployed rejoin the workforce, they often find themselves in lower paying jobs, but also due in large part to the way the U.S. financial sector works.

Over the course of several weeks, the COVID-19 shutdown has surpassed the Great Recession as first runner up to the Great Depression, having become the second worst economic downturn in modern history. The U.S. unemployment rate has skyrocketed from a 50-year low to levels unseen since the 1930s.

While optimists anticipate a quicker and easier recovery from this slump than the Great Recession, they base that claim on the assumption that the majority of jobs lost are recoverable once businesses are permitted to resume operations. A survey from Main Street America, however, indicates that nearly 7.5 million of the current 30 million small businesses in the U.S. are at risk of closing their doors over the next several months, with 3.5 million of them at risk of closing within the next two months. Over 50 percent of the U.S. workforce relies on small businesses for employment. The failure of several million of these businesses puts approximately 35.7 million Americans at risk of unemployment.




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