The world's major economies will shrink a whopping 35 percent during the current quarter, compared with the previous three months, owing to the coronavirus crisis, Goldmnan Sachs has said. This contraction in GDP is almost four times more severe than the economic impact of the great financial crisis of 2008.
The alarming outlook was shared by Goldman Sachs's New York-based economist Jan Hatzius, Bloomberg reported. In a note written on April 13, the economist said nobody knows when the economy will rebound from the never-before-seen crisis.
In the US, the question when the economic activity should be kick-started has led to a fierce political battle between President Donald Trump and his Democrat detractors. While Trump wants the economy back on the rails as soon as possible, the Democrat-controlled states where the epidemic has wreaked greater havoc have shunned the idea. Globally, Spain and Italy are warming up with an ease in restrictions despite high death numbers, while France and the UK are digging in with the lockdown.
World over, experts are not certain how to balance Covid-19 prevention protocols with economic exigencies. The only certainty is that there is only one weapon, so far, against the contagion. And that's social distancing and a stoppage of all meaningful economic activities. While a total lockdown has worked for many countries, the resultant economic hardships are slowly but certainly rolling up on to their doorsteps.
Hatzius says that easing of the restrictions can cause a relapse in many countries, which will in turn invite stricter norms that will impede economic activity further. "...the improvement [in virus containment] is probably a direct consequence of social distancing and the plunge in economic activity, and could reverse quickly if people just went back to work," he warns.
Earlier, on March 20, Goldman had cut its US economic forecast, saying GDP in the world's largest economy would plunge by 24 percent in the second quarter of 2020. "Early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway," Hatzius wrote at that point.
The triple whammy of severely crippled manufacturing and construction, the frozen-up services and sheer inactivity in housing and real estate has led to record levels of joblessness in the US. While more than half of the world's population remains indoors to fight the virus, the countries with the deadliest impact are all from the G-7 bloc that powers the global economy. China is slowly limping back to normalcy but other growth engines like Germany, UK, France, Italy and Japan are still dealing with the crisis.