The world has never faced such massive closures like the ones that we are currently experiencing due to government efforts to combat the COVID-19 pandemic.  ‘Sorry, we are closed for coronavirus’ is displayed everywhere as businesses have come to a grinding halt. This has negatively altered the lives and livelihoods as well as sent the global economy into an endless pit of uncertainty.  Countless people believe that due to the unfortunate economic circumstances, a recession is in the making. Therefore, there lies complete uncertainty about our future regarding health and economy. No one knows how long it will take to gain control of the pandemic so that economic activities can resume. Whether the nation is currently in or coming out of experiencing an economic recession is a controversial topic. Fear is inflicted across the nation as the crisis deepens with no concrete solution in sight.

According to Joseph F Lopresti, a recession is simply a normal part of the economic cycle. The fact that the U.S economy has experienced eleven recessions between 1945 and 2009,renders this statement valid. Beginning in the 1950s until now, five and a half years have been the average duration of the typical U.S economic cycle. However, the extent and impact of the recession is what primarily inflicts fear and anxiety. Multiple experts believe that the recession caused by the current COVID-19 pandemic is perhaps more devastating than the recessions that occurred in the 1920s and the 1930s.

Before concluding the kind of recession that we are facing, you must understand its impact in order to assess the potential harm it can cause. This requires a complete understanding of the economic downturn in order distinguish between a normal recession and any other type of recession like the one resulting from COVID-19.

Joseph F Lopresti explains what normal recession is

A recession is an economic condition triggered by high growth. When an economic cycle goes through the growth phase, it is a happy time for all considering that the economy goes from strength to strength while riding the growth wave. When it attains maximum growth, a recession sets in automatically, and the economy corrects itself by contracting. The process of correction or recession is normal in any economy, and as the economy decelerates, businesses generate less revenue. As companies struggle with revenue and cash, they start taking cost-saving measures, where the first action is to reduce spending on personnel or employees. Typically, these companies begin lowering wages, followed by laying off workers and stop hiring new employees.

Once the creation of new jobs ceases and there are layoffs all around, it raises concerns among the general population as people begin to realize the negative economic impact that will inevitably ensue. Due to this realization, people become more inclined to save more money and spend less on items that are not deemed to be essential. This leads to more economic contraction, due to the fact that the beginning of a recession typically reflects in lower demand for goods and services.

The recession during COVID-19

It is easy to derive the similarities with the recession described above from the situation that we are currently facing. The characteristics of the recession that we are either going through or heading for share the same similarities as that of a normal recession. Since the downturn in 2008, the US has been going through an expansion or growth phase that began in 2009. Therefore, by the laws of economics, it is time for the economy to slow down as some experts had warned, and a low down was unavoidable with or without COVID-19. However, this the extent of where the similarities lie.

The COVID-19 recession started differently. Unlike the conventional GDP contraction in two successive quarters that marks the beginning of a downturn, COVID-19 acted as a natural disaster to cause the economic downturn that is linked to the pandemic. As the pandemic struck, countries went into lockdown mode, and almost all companies closed their businesses as governments asked people to stay at home in order to ensure their general safety as well as their health. The action led to widespread job losses and layoffs, even though a portion of the population was lucky to keep working from home.  Currently, the reported number of unemployment claims filed is now above 30 million. 

The other significant difference of the COVID-19 recession is the speed and magnitude by which the economy deteriorates. This is due to the fact that the rapid collapse is viewed as unprecedented, much like the disease.

Unique effects of COVID-19 recession

The effects of the COVID-19 recession are also unique because no one could anticipate the impact that we are now experiencing. For the first time in history, the price of US oil has turned negative, which has worried oil producers who fear a shortage of storage space, so they are paying buyers to liquidate stocks. This is an alarming situation that is likely to worsen as people stay indoors, inevitably decreasing the demand for oil whatsoever. 

Not only do these circumstances create uncertainty for the future of the oil industry but it also raises the question of what other sectors will be affected next. If there is one thing that is certain in this world of uncertainty, it is that a full recession is inevitable.