The Great Lockdown is now single-handedly responsible for what could possibly be the worst economic downturn since the Great Depression of the 1930s with far worse economic implications than the Global Financial Crisis of 2008.
Advanced economies from the Eurozone to the US and more recently, the UK, have slipped into COVID-induced recessions in Q2 2020, recording double-digit contraction rates as high as over 30% in the case of the US, for instance, marking the deepest recessions in decades and the first contraction in many years for most as a result of strict lockdown measures to contain the spread of the virus.
With economic events unfolding in line with IMF predictions of a shrinkage of the global economy in 2020, this recessionary trend is expected to continue and become more apparent in more countries in Q3.
The IMF forecast advanced economies will shrink by 8% in 2020 and the ripple effects are expected to reflect in a 3% contraction in emerging markets and developing economies, given the peculiar interrelation between advanced economies and the rest of the world.
The 19-member bloc that shares the euro currency experienced a fall of 3.6% in GDP in Q1. Spain, Italy and France’s GDP rates dropped by 5.2%, 4.7% and 5.8%, respectively, during that period. These countries were amongst the first to experience the recessionary trend as they were hit by the first wave of the pandemic earlier than others, after it began in late 2019. The US followed with a contraction of 4.8% in Q1 which was the first contraction in 6 years and the largest drop in over a decade it entered recession in the second quarter as the contraction deepened to 32.9%. The UK also officially entered a recession with an alarming 20.4% in Q2, representing the worst quarterly shrinkage since records began in 1955 and the first one in about 11 years. The UK has now fallen into the deepest recession of any major world economy as industries most exposed to government lockdown measures to contain the pandemic — services, production and construction — saw record drops.
The road to recovery is envisioned to be long and gradual. There is much economic scarring to heal from.
The resulting collapse of oil prices and economic recessions in trading partner economies, has spill over effects on the Nigerian economy which the IMF forecasts to contract by 5.4 percent in 2020. The finance minister, Zainab Ahmed, however expects a fragile recovery in the first quarter of 2021 in line with IMF predictions.
Nigeria has been badly hit by the virus with government revenue expected to plunge by 80 percent this year.
Read also: Ahmed expects Nigeria to exit recession Q1, 2021 with 0.5% GDP contraction
Crude oil makes up about 90% of the nation’s export earnings and forms more than half of government revenue. Government revenue is expected to fall in response to lower oil prices and make up even less of the already low contribution of about 8% to GDP. The global stock market crash of over 20% in February 2020 also has its implications for the nation. The current economic conditions have led to rising uncertainty levels, a fall in private investment and lower remittances. There is little response to government policy tailored to stimulate the economy.
A N2.3 trillion stimulus plan put together by fiscal authorities is less than 1 percent of GDP and may have minimal impact in reviving the economy.
Perekunah Eregha, a macroeconomics professor at the Pan-Atlantic University said, “The aftermath effect is declining price of crude oil globally that affects an oil dependent economy like Nigeria.
“As a result of declining oil price, export earnings and foreign revenue would be affected. COVID-19 also spurs higher uncertainty, which affects investment decisions both in the domestic and global economy. Thus, declining investment explains lower output (GDP) and rising unemployment,” Eregha said as he explained the changing dynamics of the Nigerian economy as a result of the pandemic.
Consumption-reliant economies such as the US are recoiling adversely from COVID induced setbacks. Airport closures have had damaging outcomes on countries such as Spain and Mexico who generate a large proportion of employment and revenue from tourism.
The euro zone economy contracted by 12.1% in the second quarter of 2020, compared to the first quarter of the year, according to preliminary data from the region’s statistics office.
Friday’s reading is the lowest since records began in 1995.
German GDP contracted by 10.1%; Italy’s sank by 12.4%; France’s fell by 13.8%; and Spain’s shrank by 18.5%. Spain currently maintains the worst performing economy in Q2 in the region.
The latest reading looks at the economic activity between April and June, which coincides with the period of time when many European governments had strict shutdowns that were slowly eased as the quarter progressed. There is still a lot of uncertainty going forward, with some countries reporting an increase in Covid-19 infections in recent weeks.
Different governments have now said they will not close their economies in full, as they did before. But officials say they are ready to impose additional and stricter rules on gatherings and other social-distancing rules to avoid a large second wave.
It is not all gloom, however, as hope can be drawn from China’s post COVID-19 economic recovery which has recorded an expansion of 3.2% in Q2. Although, not without its challenges moving forward, there are projected growth figures for global recovery in 2021.
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