Anatomy of the Coronavirus Collapse
The world economy is experiencing a severe, simultaneous, and universal collapse unlike anything seen since World War II. And while the downturn could prove sharp but short, a more realistic assessment points to a long and protracted global recession.
ITHACA – The world economy is on the precipice of its worst crisis since World War II. As the newly updated Brookings-FT TIGER (Tracking Indexes for the Global Economic Recovery) makes clear, economic activity, financial markets, and private-sector confidence are all cratering. And if international cooperation remains at its current level, a far more severe collapse is yet to come.
To be sure, the current extraordinarily sharp downturn could prove to be relatively brief, with economic activity snapping back to previous levels once the COVID-19 contagion curve is flattened. But there is good reason to worry that the world economy is heading into a deep, protracted recession. Much will depend on the pandemic’s trajectory and whether policymakers’ responses are sufficient to contain the damage while rebuilding consumer and business confidence.
But a rapid recovery seems highly unlikely. Demand has been ravaged, there have been extensive disruptions to manufacturing supply chains, and a financial crisis is already underway. Unlike the 2008-09 crash, which was triggered by liquidity shortages in financial markets, the COVID-19 crisis involves fundamental solvency issues for firms and industries well beyond the financial sector.