- During the financial crisis, two countries did not allow the global economy to disintegrate even further away – China and India.
- Unfortunately, this time – in the economic crisis caused by the coronavirus pandemic – no country is coming to our rescue.
- India has been blocked for months, and China is still feeling the debt hangover from the reloading of the loan, which continued to skip the financial crisis.
- This gives us an even greater reason for Washington to pass another bill to help with coronavirus as soon as possible.
- This is a column of opinions. The thoughts expressed are those of the author.
- Visit the Business Insider homepage for more stories.
The coronavirus depression will be much worse than the last global recession, because this time no country is strong enough to save the world economy.
The story of the Great Recession is as follows: The United States and Europe were crippled as they worked to clean up their devastated banking system, the global services sector suffered without its biggest player ̵
In China, politicians have introduced a huge incentive to skip the recession altogether. The country’s GDP grew by 9.4% in 2009. India returned as if the crisis had just happened, and GDP grew by 7.9% in 2009.
But this time, there is no corner of the globe left untouched by the pandemic or its effects. So, there is no country that can have reasonable fun and not allow things to become really catastrophic.
Economists at the Institute of International Finance (IIF) recently wrote in a recent note that the growth of these two countries has lifted the global economy while the US economy was on its knees. That is why in 2009 global GDP fell to -0.4%. Conversely, without their help, economists estimate that global GDP will fall to -3.8% this year.
Sustained for a hero
The high-growth countries that kept the world economy from falling free are not coming to our rescue this time. No one is.
India is now on the 170th day of the blockade to slow the spread of the coronavirus. Credit rating company Moody’s expects economic growth to fall by 11.5% in 2020.
And while the worst of China’s blockade is over (so far), GDP growth of about 3.2% in 2020 is expected to be far from a decade ago. Plus, this time politicians in China are much more cautious with their incentives. In part, this is because the government is concerned that a new blockade may need to be introduced.
Politicians are also cautious, as China is still dealing with a large-scale hangover from 2009. Passing the recession is not cheap. China has spent half a trillion dollars to avoid the financial crisis, and in the following years it has built a massive, opaque shadow banking system that it has since tried to quell since 2015. This year, China’s total debt – corporate, household and government – is shrinking. climbed to 303% of GDP.
So while the government is pulling some levers it has pulled to boost economic activity during the financial crisis – such as encouraging investment in infrastructure – China’s central bank, the People’s Bank of China, has said it sees no need for additional emergency stimulus in 2020
With weak demand coming from China and India, Latin America will sell fewer goods and the whole of Asia will slow down, IIF notes. We cannot expect exceptional growth from there.
Can the European Union save us? The swift response of the eurozone countries to the pandemic seemed like a model for the rest of the world and a potential aid to economic chaos. But now cases are mounting in countries like Spain and France, and the bloc is unlikely to have the economic strength to strengthen the rest of the world at the moment.
In April, I wrote that even when the coronavirus is brought under control, we will live in a shrunken world – a world in which human transactions will be limited. Since economic transactions are mostly human interactions, you can see the problem there. It was obvious that there would be a delay, how badly it would depend on the way we dealt with it.
April was a simpler time, then the assumption was that the United States would bring its first wave and that the second wave can grow your ugly head in the fall. Of course, our first wave never ended. We did badly with the coronavirus. Unemployment in the United States is 8.3%. Testing is scattered. Washington has come together to blunt the full force of the coronavirus, but Democrats and Republicans are now debating whether or not the country needs another bailout.
That is right. In fact, the whole world needs it.
Do you have a personal experience with the coronavirus you want to share? Or advice on how your city or community is coping with the pandemic? Please email email@example.com and tell us your story.
Get the latest business and economic impact analysis of the coronavirus from Business Insider Intelligence on how COVID-19 affects industries.
This is a column of opinions. The expressed thoughts belong to the author (authors).