Why the Global Recession Could Last a Long Time



Nadia Shira Cohen for The New York Times

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LONDON — The world is almost certainly ensnared in a devastating recession delivered by the coronavirus pandemic.


Now, fears are growing that the downturn could be far more punishing and long lasting than initially feared — potentially enduring into next year, and even beyond — as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth.


The pandemic is above all a public health emergency. So long as human interaction remains dangerous, business cannot responsibly return to normal. And what was normal before may not be anymore. People may be less inclined to jam into crowded restaurants and concert halls even after the virus is contained.


The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.


Stock markets have reflected the economic alarm. The S&P 500 in the United States fell over 4 percent on Wednesday, as investors braced for worse conditions ahead. That followed a brutal March, during which a whipsawing S&P 500 fell 12.5 percent, in its worst month since October 2008.



Samuel Aranda for The New York Times

“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.”

“我觉得2008年的金融危机只是这一次的演习,”哈佛大学经济学家、金融危机史著作《这次不一样——八个世纪的金融愚行》(This Time Is Different: Eight Centuries of Financial Folly)的合著者肯尼斯·S·罗格夫(Kenneth S. Rogoff)说。

“This is already shaping up as the deepest dive on record for the global economy for over 100 years,” he said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”


The situation looks uniquely dire in developing countries, which have seen investment rush for the exits this year, sending currencies plummeting, forcing people to pay more for imported food and fuel, and threatening governments with insolvency — all of this while the pandemic itself threatens to overwhelm inadequate medical systems.


Among investors, a hopeful scenario holds currency: The recession will be painful but short-lived, giving way to a robust recovery this year. The global economy is in a temporary deep freeze, the logic goes. Once the virus is contained, enabling people to return to offices and shopping malls, life will snap back to normal. Jets will fill with families going on merely deferred vacations. Factories will resume, fulfilling saved up orders.


But even after the virus is tamed — and no one really knows when that will be — the world that emerges is likely to be choked with trouble, challenging the recovery. Mass joblessness exacts societal costs. Widespread bankruptcy could leave industry in a weakened state, depleted of investment and innovation.



Andrew Testa for The New York Times

Households may remain agitated and risk averse, making them prone to thrift. Some social distancing measures could remain indefinitely. Consumer spending amounts to roughly two-thirds of economic activity worldwide. If anxiety endures and people are reluctant to spend, expansion will be limited — especially as continued vigilance against the coronavirus may be required for years.


“The psychology won’t just bounce back,” said Charles Dumas, chief economist at TS Lombard, an investment research firm in London. “People have had a real shock. The recovery will be slow, and certain behavior patterns are going to change, if not forever at least for a long while.”

“人们的心理不会就这么反弹,”伦敦投资研究公司TS Lombard的首席经济学家查尔斯·杜马斯(Charles Dumas)表示。“人们受到了真正的冲击。恢复将是缓慢的,某些行为模式将会改变,即使不是永远,至少也是在很长的一段时间内。”

Rising stock prices in the United States have in recent years propelled spending. Millions of people are now filing claims for unemployment benefits, while wealthier households are absorbing the reality of substantially diminished retirement savings.


Americans boosted their rates of savings significantly in the years after the Great Depression. Fear and tarnished credit limited reliance on borrowing. That could happen again.



Giulia Marchi for The New York Times

“The loss of income on the labor front is tremendous,” Mr. Dumas said. “The loss of value in the wealth effect is also very strong.”


The sense of alarm is enhanced by the fact that every inhabited part of the globe is now in trouble.


The United States, the world’s largest economy, is almost certainly in a recession. So is Europe. So probably are significant economies like Canada, Japan, South Korea, Singapore, Brazil, Argentina and Mexico. China, the world’s second-largest economy, is expected to grow by only 2 percent this year, according to TS Lombard, the research firm.

作为世界上最大的经济体,美国几乎肯定处于经济衰退之中。欧洲也是如此。因此,加拿大、日本、韩国、新加坡、巴西、阿根廷和墨西哥等重要经济体可能也是如此。据研究公司TS Lombard称,世界第二大经济体中国今年的经济增长率预计仅为2%。

For years, a segment of the economic orthodoxy advanced the notion that globalization came with a built-in insurance policy against collective disaster. So long as some part of the world economy was growing, that supposedly moderated the impact of a downturn in any one country.



Matthew Abbott for The New York Times

The global recession that followed the financial crisis of 2008 beggared that thesis. The current downturn presents an even more extreme event — a worldwide emergency that has left no safe haven.


When the pandemic emerged, initially in central China, it was viewed as a substantial threat to that economy. Even as China closed itself off, conventional wisdom held that, at worst, large international companies like Apple and General Motors would suffer lost sales to Chinese consumers, while manufacturers elsewhere would struggle to secure parts made in Chinese factories.


But then the pandemic spread to Italy and eventually across Europe, threatening factories on the continent. Then came government policies that essentially locked down modern life, business included, while the virus spread to the United States.


“Now, anywhere you look in the global economy we are seeing a hit to domestic demand on top of those supply chain impacts,” said Innes McFee, managing director of macro and investor services at Oxford Economics in London. “It’s incredibly worrying.”

“现在,在全球经济的任何地方,我们都能看到,除了这些供应链受影响之外,国内需求也受到打击,”位于伦敦的牛津经济(Oxford Economics)宏观和投资者服务部常务董事英尼斯·麦克菲(Innes McFee)说。“这极其令人担忧。”


Victor J. Blue for The New York Times

Oxford Economics estimates that the global economy will contract marginally this year, before improving by June. But this view is likely to be revised down sharply, Mr. McFee said.


Trillions of dollars in credit and loan guarantees dispensed by central banks and governments in the United States and Europe have perhaps cushioned the most developed economies. That may prevent large numbers of businesses from failing, say economists, while ensuring that workers who lose jobs will be able to stay current on their bills.


“I am attached to the notion that this is a temporary crisis,” said Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva. “You hit the pause button, and then you hit the start button, and the machine starts running again.”

“我坚信,这是一次暂时的危机,”日内瓦的东方汇理财富管理公司(Indosuez Wealth Management)全球首席经济学家玛丽·欧文斯·汤姆森(Marie Owens Thomsen)说。“你按下了暂停键,然后又按下开始键,机器又重新运转起来。”

But that depends on the rescue packages proving effective — no sure thing. In the typical economic shock, government spends money to try to encourage people to go out and spend. In this crisis, the authorities are demanding that people stay inside to limit the virus.


“The longer this goes on, the more likely it is that there will be destruction of productive capacity,” Ms. Owens Thomsen said. “Then, the nature of the crisis morphs from temporary to something a bit more lasting.”


Worldwide, foreign direct investment is on track to decline by 40 percent this year, according to the United Nations Conference on Trade and Development. This threatens “lasting damage to global production networks and supply chains,” said the body’s director of investment and enterprise, James Zhan.

根据联合国贸易和发展会议(United Nations Conference on Trade and Development)的数据,今年全球范围内的外国直接投资可能继续下降40%。该机构的投资和企业司司长詹晓宁说,这可能构成“对全球生产网络和供应链的持久破坏”。

“It will likely take two to three years for most economies to return to their pre-pandemic levels of output,” IHS Markit said in a recent research note.

IHS Markit在最近的一份研究报告中表示:“大多数经济体可能需要两到三年的时间才能恢复疫情前的产出水平。”

In developing countries, the consequences are already severe. Not only is capital fleeing, but a plunge in commodity prices — especially oil — is assailing many countries, among them Mexico, Chile and Nigeria. China’s slowdown is rippling out to countries that supply Chinese factories with components, from Indonesia to South Korea.



Agence France-Presse — Getty Images

Between now and the end of next year, developing countries are on the hook to repay some $2.7 trillion in debt, according to a report released Monday by the U.N. trade body. In normal times, they could afford to roll most of that debt into new loans. But the abrupt exodus of money has prompted investors to charge higher rates of interest for new loans.


The U.N. body called for a $2.5 trillion rescue for developing countries — $1 trillion in loans from the International Monetary Fund, another $1 trillion in debt forgiveness from a broad range of creditors and $500 billion for health recovery.


“The great fear we have for developing countries is that the economic shocks have actually hit most of them before the health shocks have really begin to hit,” said Richard Kozul-Wright, director of the division on globalization and development strategies at the U.N. trade body in Geneva.

位于日内瓦的联合国贸易部全球化与发展战略司司长理查德·科祖尔-赖特(Richard Kozul-Wright)说:“我们对发展中国家的最大担心是,在健康冲击真正开始发作之前,多数国家就已经在面临经济冲击了。”


Victor Moriyama for The New York Times

In the most optimistic view, the fix is already underway. China has effectively contained the virus and is beginning to get back to work, though gradually. If Chinese factories spring back to life, that will ripple out across the globe, generating demand for computer chips made in Taiwan, copper mined in Zambia and soybeans grown in Argentina.


But China’s industry is not immune to global reality. Chinese consumers are an increasingly powerful force, yet cannot spur a full recovery. If Americans are still contending with the pandemic, if South Africa cannot borrow on world markets and if Europe is in recession, that will limit the appetite for Chinese wares.


“If Chinese manufacturing comes back, who exactly are they selling to?” asked Mr. Rogoff, the economist. “How can global growth not take a long-term hit?”