2020 Recession Shared Widely

September 24, 2020

Two characteristics of the 2020 recession set it apart from all others in the last hundred years. It did not result from some kind of economic or financial market imbalance, and it constitutes the second extreme downturn in a row. Business cycle upswing do not end from old age. The expansion that began in mid-2009 was not exhibiting unsustainable imbalance. Low wage and price inflation was allowing macroeconomic stimulus to continue. Current account imbalances were manageable in size. Bank balance sheets were in much better shape than before the last recession, and debt crises hadn’t erupted. Stock markets were historically high, but the overdue correction that began in February had been largely reversed by mid-September. Housing prices hadn’t soared.

In the first decade of the 21st century, the world experienced its severest recession up to that point since the 1930s. The ensuing business upswing was long in the tooth by the start of this year, but any recession chattered speculated on an onset in 2021 or later, and there wasn’t concern that it would be as harsh or more so as the last one. Back-to-back blowout contractions hadn’t occurred in living memory, and economic imbalances were contained for the most part.

The cause of the 2020 recession came from a wholly exogenous factor, which was the sudden emergence of an uncontainable, highly infectious, and rather lethal viral infection. Few places on the planet were spared from the necessity of closing down segments of the economy that involved close person-to-person contact. And while the success or failure of governments to reduce the viral spread has varied widely, the early effects on real GDP have been more closely bunched into distinct bunches.

U.S. second quarter-over-first quarter GDP growth expressed at an annualized rate printed at a negative 31.7%. Growth in Japan (-28.1%), Germany (-33.5%), Switzerland (-29.1%), Sweden (-29.3%), Brazil (-33.5%), the Czech Republic (-30.6) and Poland (-31.1%) were not radically different than what the contraction experienced in the United States. Australia (-25.2%) fared somewhat better but not radically so as it had a dozen year earlier when it escaped the Great Recession. Real GDP in Euroland and Canada fell more sharply — by 39.4% and 38.7% respectively. Even lower on the second-quarter leader board were Mexico (-52.7%) and South Africa (-51.0%), then Spain (-55.8%) and Great Britain (-59.8%), and finally India (-69.4%) and Peru (-72.1%). Despite these straggling outliers, however, the broader takeaway is how much of the world economy experienced a downturn close to 30%.

To be sure, the greatest deviant observation of the quarter at first glance was China’s positive growth of 54.6% annualized, but that’s because China was stricken earlier by the virus than the rest of the world. In the first quarter of 2020, Chinese real GDP had slumped 33.8%, not far apart from the rate of contraction in 2Q shared by the United States, Germany, Japan and several other economies.

It will be interesting to see if this group experience’s similar rebounds in the third quarter to China’s second-quarter result. In year-over-year terms, Chinese growth swung from a 6.8% drop in 2Q to +3.2% in 1Q. China had a comparatively higher pre-pandemic growth norm of 6.0% in the second half of 2019 and 6.3% in the first half of that year. Positive on-year growth in other countries as soon as 3Q appears unlikely.

On-year growth in the second quarter stood at negative 9.1% in the United States, -9.9% in Japan and Turkey, -9.3% in Switzerland, -10.9% in the Czech Republic and -11.4% in Brazil. Smaller four-quarter declines occurred in Norway of 4.9%, Australia of 6.3%, Sweden of 7.7% and in the Poland and Russia (each -8.0%). Larger on-year slides were felt in Euroland of 14.7%, the Philippines of 16.5%, South Africa and Malaysia of 17.1%, Mexico of 18.7%, Great Britain of 21.7% and India of 23.9%.

In time, it seems reasonable to expect the wider dispersion of pandemic severity across countries to fan out more fully into economic growth outcomes than was seen in the second quarter when the Covid-19’s first wave struck a lot of countries all at once.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express  permission.

 

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