5 signs that the USA and the world are headed for the worst economic depression

Will this recession surpass 2008/09, and how quickly can the economy recover?

Draconian lockdowns have followed coronavirus around the world. The priority is to ease pressure on health services and minimize loss of life – so-called flattening the curve. In the worst-affected countries, all but essential businesses, industries and public services are shut, and citizens are advised to stay home. Such restrictions on civil liberties, unthinkable just a few weeks ago, are the new reality.

Never has the global economy been suppressed like this. Lockdowns have a severe impact on economic demand and supply and risk triggering an economic meltdown.

Three signs point to a dismal outlook:

Oil Prices

Russia’s attack on Ukraine and retaliatory sanctions from the West may not augur another global recession. The two countries together account for less than 2% of the world’s gross domestic product. And many regional economies remain in solid shape, having rebounded swiftly from the pandemic recession.

Russia is the world’s third-biggest producer of petroleum and is a major exporter of natural gas. With heavy Sanctions imposed on Russia, logistics of oil and fuel products from Russia will not only be complicated but also expensive. This will make the Middle-East and Gulf Nations close to a monopoly on the major global energy sources. This will make fuel prices skyrocket until Russia’s sanctions are lifted. For your business, stocking of more products will be more costly as the manufacturing costs of every product will rise.

The Russia – Ukraine Factor

Russia’s attack on Ukraine and retaliatory sanctions from the West may not augur another global recession. The two countries together account for less than 2% of the world’s gross domestic product. And many regional economies remain in solid shape, having rebounded swiftly from the pandemic recession.

Russia is the world’s third-biggest producer of petroleum and is a major exporter of natural gas. With heavy Sanctions imposed on Russia, logistics of oil and fuel products from Russia will not only be complicated but also expensive. This will make the Middle-East and Gulf Nations close to a monopoly on the major global energy sources. This will make fuel prices skyrocket until Russia’s sanctions are lifted. For your business, stocking of more products will be more costly as the manufacturing costs of every product will rise.

Unemployment Rates

The graph below shows a drop in the employment rates globally since 2019. The graphs and statistics are by Bankrate.com

Confidence Indices

Confidence for borrowers and lenders both on a macro and micro level has been on a fluctuating drop since 2019. Statistics and graph by Bankrate.com

Return to our definition of an economic depression. First, the current slowdown is without doubt global. Most postwar U.S. recessions have limited their worst effects to the domestic economy. But most were the result of domestic inflation or a tightening of national credit markets. That is not the case with COVID-19, gas prices and the Russian invasion of Ukraine and the current global slowdown. This is a synchronized crisis, and just as the relentless rise of China over the past four decades has lifted many boats in richer and poorer countries alike, so slowdowns in China, the U.S. and Europe will have global impact on our globalized world. This coronavirus has ravaged every major economy in the world. Its impact is felt everywhere.

A short, sharp recession, followed by long-lasting damage

Will the policy response enable the global economy to hibernate through the worst of the pandemic crisis then rebound quickly? Unfortunately, it doesn’t appear so. This is not like previous recessions. The near-immediate impact sets it apart — the peak-to-trough contraction will be swift.

The lifting of societal lockdowns will facilitate a surge in growth as economic activity normalizes from suppressed levels. But we expect an economic hangover. According to our high-level recession scenario, global GDP levels might always trail the pre-coronavirus trend.