Which Countries Are Facing Risk of Recession From The COVID-19 Pandemic?
Some countries have confirmed that they are entering a recession, a condition when a country’s growth is negative in two successive quarters.
COVID-19 has severely impacted global healthcare and the economy. The pandemic has hit almost all industrial sectors such as hospitality, tourism, and automotive, given that such a situation has forced several businesses to temporarily shut down their operations due to social restriction policy in order to contain the spread of the virus.
The latest data from the International Monetary Fund (IMF) on June 24 estimated that the global economy’s pandemic impact could be worse than expected, warning that the global economic output would shrink almost 5 percent—worse than the previous estimate of 2 percent.
Some countries have confirmed that they are entering a recession, a condition when a country’s growth is negative in two successive quarters. Here they are:
The closure of business sectors due to the pandemic has led the U.S to the brink of the recession, the first in 11 years, CNNBusiness reported. This recession—triggered by the health crisis—is even four times worse than the 2008 global crisis recession.
In the fourth quarter of 2008, the U.S economy shrank by 8.4 percent. While in the second quarter of this year, the economy dropped by 32.9 percent after falling five percent in the first quarter, the official data showed.
Some of the U.S big cities like Los Angeles, New York have seen a significant rise in the unemployment rate, above 20 percent—above the national rate. This means that 1 in 5 people is unable to find a job.
American lawmakers are still formulating the stimulus package amid the dispute over the unemployment allowance worth US$ 600 per week. Both Republic and Democrats factions were still at loggerheads over the aid for the COVID-19 mitigation.
The tiny nation confirmed a recession after its Q2 growth contracted 41.2 percent quarter on quarter. The recession is the worst since the country gained its independence in 1965.
Such an economic hardship is a big blow to the country’s ruling party, the People Action Party (PAP). Despite winning the election on July 10, the party’s percentage of votes gained in this year’s election dropped to around 61 percent compared to 71 percent in the 2015 poll.
Singapore—once hailed for tackling the pandemic effectively—saw the highest spike in the new numbers of COVID-19 infections following the surge in the numbers of new cases in crowded migrant workers’ dormitories.
At the end of May, Singapore announced its fourth stimulus package worth S$ 33 billion, making the total amount of the financial support S$ 100 billion combined with the three previous packages.
The aid package will provide a rental waiver and enhanced wage support for business owners who cannot continue their operations due to the pandemic. In early April, Singapore imposed a circuit breaker—or known as a partial lockdown—which restricts people’s mobility. Students and employees were told to study and work from home, except for essential sectors such as telecommunication, health care, and groceries.
The Asia’s fourth-largest economy is not recession-free given the growth in this year’s Q2 shrank 3.3 percent after declining 1.3 percent in Q1.
South Korea’s central bank The Bank of Korea confirmed the growth contraction per quarter was the worst decline since the Asian financial crisis in 1998.
Export—which is the country’s economic backbone—plunged 16.6 percent, the sharpest decline since 1963. However, the household consumption still rose 1.4 percent, thanks to the government’s cash aid.
South Korea’s Finance Minister Hong Nam-ki said the economy will likely rebound in the third quarter.
“It’s possible for us to see a China-style rebound in the third quarter as the pandemic slows,” the minister spoke in a meeting last week, Reuters reported cited in the Jakarta Post.
One of the world’s and Europe’s economic powerhouses announced it had entered a recession after its Q2 growth dropped 10.1 percent due to the impact of the pandemic that affected export and household consumption.
In the Q1, the growth contracted 2.2 percent. The economic contraction due to the pandemic was worse than the 2008-2009 global crisis.
However, the European Union data on July 30 showed that Germany’s unemployment rate was relatively stable—4.2 percent, as recorded at the end of June, up slightly from 3.8 percent at the end of March, the statistics said.
Other countries are on the brink of recession too
The prolonged demonstrations that opposed the now-annulled controversial extradition bill and now the national security bill have hit Hong Kong’s economy.
However, the pandemic has brought Asia’s financial hub to a deeper recession. As quoted from RTHK, Hong Kong’s Q2 growth dropped 9 percent. It is predicted that the recession will be long-term.
On August 5, Indonesia announced its Q2 growth contracted 5.32 percent, the worst since 1999 when the Q1 growth slipped 6.1 percent.
The country’s transportation sector was the most severely hit by the pandemic given that the social restriction measure ordered people to stay at home and the closure of offices, schools, and entertainment hubs.
Various Factors Can Determine the Recovery of the Economy
Fadhil Hasan, an Indonesian economist, told CT that whether a country can rebound after the pandemic ends will depend on several factors.
“For example, how effective is the government spending on vital sectors such as healthcare for the pandemic mitigation? And also, whether there is a second wave or not?” the expert said.
Some of the countries are facing the pandemic’s second wave after successfully containing the infection rate. South Korea, Australia, and Vietnam have seen the surge in the number of new COVID-19 cases after reopening their economies.
Strict lockdown can hurt the economy. However, the mitigation will be faster, and the economy will rebound even though it may take time.
China—where the pandemic began and imposed a strict lockdown earlier than any other country-saw its Q2 economy rose 3.2 percent after contracting 6.8 percent in the first quarter. However, not all countries have applied a harsh lockdown due to economic considerations.
“Yeah, China’s economy can grow slowly after controlling its pandemic. The health crisis mitigation will determine how the economy is recovering,” Hasan concluded in the interview.