In March and April, various world organizations suggested that the epidemic will peak in the second quarter, after which the global economy will dramatically pull out of a nose dive and start to recover.
Experts predicted a V-shaped trajectory (sharp instant decline followed by drastic recovery). However, according to AMarkets Analytics Director Artem Deev who spoke to Invest Foresight, the forecast did not prove true in China where the lockdown ended earlier than anywhere else; nor did that happen in Europe and especially in the United States or Russia where the lockdown was imposed later.
China lost at least 10% of its growth achieved in the past 10 to 15 years due to the economic shutdown. Germany’s industrial production in May reduced by 29.9% compared to 2019 while Italy’s reduced by 42.4% and India’s by 55.4%. The UK lost 2.2% of its GDP in Q1, which is a record drop of the past 40 years. The unemployment rate in the United States is currently 42.2% (during the Great Depression 100 years ago it was around 25%), the expert explains.
“Currently, the IMF, the World Bank, the Federal Reserve System and other influential organizations are increasingly more often saying that the pandemic has resulted in the most serious crisis of the past 100 years and the recovery may take years. It is expected that the crisis will follow a U-shaped or a W-shaped course, with drastic declines, prolonged pitfalls and lengthy recovery, or a series of drops and recoveries. Russia, with its commodity-oriented economy, will also need a long time to come out of the recession,” Artem Deev stressed. Russian government agencies as well as the Higher School of Economics, Lomonosov Moscow State University and the Russian Academy of Sciences claim that we have not hit the rock bottom yet and it will happen around the end of the year. Since the lockdown was lifted, only 70% of companies in various industries have resumed operation. They are also reporting a decline in turnover and profit of 30% on average. This means that we can expect unemployment to grow and consumer demand to decrease further. Therefore, it will be difficult for the economy to grow as people will rarely buy anything but essentials. The same applies to export. With the global economy in decline, the demand for all types of commodities has sunk. Commodities constitute the major part of Russia’s GDP. Still, the government expects that the Russian economy will recover in Q2 2021. Let’s hope that the crisis will subside by then.”
The 2020 corona crisis caused by imposed socioeconomic barriers that were put in the way of the pandemic resulted in a significant decline of business and consumer activity in the country, according to BCS Broker stock market expert Mikhail Zeltser.
“According to our estimates, this year, Russia’s GDP will fall by some 3%-4%, the unemployment will grow by 4.7% as compared to last February, and then by 3% in the next quarters,” the expert said. “Nevertheless, the large share of industrial production and agriculture in the structure of the national economy allows us to hope for moderately negative consequences for Russia’s macroeconomic indices as compared to European countries, where the service sector, which has suffered the most during the crisis, takes some 80% of GDP.”
When comparing the current crisis with the recession of 2008-2009, we can see that this year’s crisis is unique: the multiple deflation of the country’s trade balance surplus since the beginning of the year was caused by both falling global demand for Russia’s main goods, and extremely negative price movements.
Twelve years ago, the demand behavior was not that underwhelming. However, the lifting of the coronavirus measures all over the world can promptly return a big part of the consumable energy commodities, which will neutralize the huge losses of the spring, the expert hopes.
“Even though it is still uncertain as to when the global pandemic will be stopped, the dynamics of the Russian economic recovery suggests that the peak of the crisis is now over. The restoration of the lost positions can take at least nine months. In the end of 2021, we will expect GDP growth that will cover the losses of 2020,” Mikhail Zeltser concluded.