Macro Moves

Will Coronavirus Lead to a Recession?

Created on 28 Mar 2020

Wraps up in 3 Min

Read by 4.3k people

Updated on 09 Oct 2020

Coronavirus has hit the economy hard indeed.Are we entering into a recession post lockdown?
There’s a funny Cricket video on YouTube in which a fielder on the boundary puts in an intense dive and slides to save the boundary and also manages to save it but, in his effort takes off the pants (the lower slips off due to the impact of dive and slide). On the one hand, the spectators appreciate the effort but they can not stop laughing when they see the player without pants. Now, imagine the boundary as pandemic and pants as the economy. While the government is doing everything to control the spread of the pandemic, the economy is suffering in parallel.

India is battling it out against the ghastly Coronavirus and the economy is suffering as collateral damage in this battle. The lockdown is essential to protect the people but, the fact that it will hit the economy hard can not be denied. Experts are worried that the GDP growth will decline by maybe 2 percentage points! That would be just enough to enter into a recession.

Moody’s Stamp

Global rating agency Moody’s has analyzed a steep decline in India’s GDP growth and projected it to be around 2.5% in 2020-21. This has come after three weeks of the last downgrade. Then Moody’s had forecasted the growth at 5.3%. So, as per the global macro outlook released on Friday, the lockdown imposed by the government of India will drastically reduce the pace of development and economic growth. This means that the threat of economic recession is real and we’re almost there. Although, the rating is not the final word and things might change into India’s favor if some factors contribute. Like, if the RBI and government in sync handle the situation well enough (signs of which are somewhat visible) and if the global community remains positive post the pandemic is over.

The G-20 Acknowledgement

In the G-20 virtual summit held on Thursday, member countries unanimously decided to allocate funds to revive the struggling world economy against Coronavirus. And for this, they have decided to spend close to $5 trillion. What this means is that the world is acknowledging the economic crisis and that recession is not far away or maybe it has knocked on the door.

This has come at a time when we were thinking of discussing whether we are entering into a recession or not. By the way, the Organization for Economic Co-operation and Development (OECD) and S&P have also followed suit and revised India’s growth projection. And, based on the lockdown they are going to make further revisions.

Can we Handle This?

The recession might well come and the government is also trying to avoid it by taking precautionary measures. Like, a day before yesterday a relief package worth 1.7 lakh crores were declared by the Finance Ministry and yesterday, the RBI after discussing in the Monetary Policy Committee meeting announced some measures to avoid de-stabilization of the banking system. All this is happening but will this be able to curtail the effect of Coronavirus on our economy, we’ll have to wait and watch. 

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Deb P Samaddar

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If people could be named after idioms, Deb would be called "I'm all ears." His brain is a storehouse, ever overflowing with derelict information. So, while most things he talks about are as useless as occasion-less greeting cards, everything he writes has the potential of bagging you multiple diplomas!

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