The Worst Quarter in Modern Economic History

It was widely expected that the economic results for the second quarter of 2020 would be the worst that the world has seen in at least 75 years. While the global economy was already slowing over the past year, the sudden spread of the coronavirus pandemic caused the greatest disruptions to the global economy since the Second World War.

In the early stages of the pandemic, it was hoped that, like many outbreaks before, this one could be contained in just a handful of locations. However, once the coronavirus reached Europe in large numbers in late February, it became inevitable that its spread would be worldwide. In the following months, the pandemic spread from Europe to the United States, Latin America, India and nearly all other corners of the globe, shutting down vast swathes of the global economy and putting huge numbers of people out of work. In fact, businesses and entire industries were forced to almost completely shut down as measures were put in place to slow the spread of the coronavirus. Nevertheless, when many countries’ second quarter GDP results were released in recent days, they managed to prove to be incredibly shocking.

The Worst Economic Decline in the US Since the Great Depression

In terms of total numbers, no country has been hit harder by the coronavirus pandemic than the United States, with more than 4.8 million cases of the virus and 158,000 fatalities. Therefore, it was little surprise that the US economy suffered its greatest decline in output since the Great Depression in the second quarter of this year. On a year-on-year basis, the US economy contracted by 9.5%, which was in fact a slightly better result than had been expected.

This dramatic result was due in large part to a massive decline in consumer spending in the second quarter, particularly in terms of the service sector. At the same time, fixed investment and exports also declined substantially in the second quarter.

Also in North America, the Mexican economy was severely battered by the coronavirus pandemic, with Latin America’s second-largest economy shrinking by a shocking 18.9% year-on-year in the second quarter. This raises the likelihood that other Latin American economies also suffered massive declines in output in the second quarter, given how much the pandemic has impacted that region.

Economic Devastation in Europe

In Europe, the economic results for the second quarter were the worst that we have seen so far. For the European Union, economic output declined by 14.4% on a year-on-year basis in the second quarter, while for the Eurozone group of countries, GDP fell by an even greater 15.0%.

The results for some individual European countries are even more staggering. Italy’s economy shrank by 17.3% on a year-on-year basis in the second quarter, and as a result, its economic output has fallen back to the level of 1997, making Italy the world’s worst performing large economy so far in the 21st century. France’s economy performed even worse in the second quarter, shrinking by 19.0% year-on-year, while Spain’s economy was truly devastated by the pandemic, shrinking by an incredible 22.1% year-on-year.

Only in northern and eastern Europe has economic output not fallen quite so far, highlighted by the German economy’s 11.7% year-on-year contraction in the second quarter. With stagnant domestic markets and an over-reliance upon exports and tourism, many European economies have been dangerously exposed to the disruptions caused by the coronavirus pandemic.

Mixed Results in Asia

Relatively few Asian economies have reported their GDP results for the second quarter, but those that have show that some economies in that region are performing better than others. China might be the only large economy that recorded significant growth in the second quarter, as its economy expanded by a better-than-expected 3.2% on a year-on-year basis during that period.

In contrast, South Korea’s economy contracted in the second quarter (-2.9%), while Singapore (-12.6%) and Hong Kong (-9.0%) both suffered steep declines during that period.

So far, the coronavirus pandemic has not hit most of Asia as hard as it has hit Europe and the Americas, allowing for many countries in that region to escape the worst of the economic impact of this pandemic so far. As such, this crisis, much like the Financial Crisis in 2008 and 2009, could serve to further tip the economic balance of power more towards Asia.

More Bad Results to Come

The results that have been released so far for the second quarter of this year are extremely sobering and they highlight the immense challenge that economies will have in making up the ground that they have lost so far this year. Furthermore, a number of important economies have yet to release their second quarter GDP results, and many of these could also prove to be highly unsettling.

For example, the United Kingdom and Canada are both forecast to have suffered double digit declines in output in the second quarter, with output in the UK forecast to have contracted by more than 20%. On the other hand, Japan and Australia, while also suffering significant losses in the second quarter, are not expected to show such poor results.

Meanwhile, upcoming results from many key emerging markets are likely to be extremely devastating, particularly those from India, Latin America and Russia. Only some Southeast Asian economies are expected to deliver results that are less than terrible, and even these will represent a major decline from that region’s previous rates of economic growth.

Tentative Hopes for a Recovery

Despite these terrible results from the second quarter of this year, there are still hopes that many of the world’s leading economies can stage a strong recovery in the second half of this year. As lockdown measures were eased in the latter part of the second quarter and the early part of the third quarter in many important economies, it is expected that consumer spending will bounce back from its collapse earlier in the year. Likewise, the collapse of trade and investment that took place in the first half of the year is also expected to ease, albeit at an uneven pace.

Nevertheless, the fear of a second wave of the pandemic is dampening hopes for a full-scale recovery. In the United States, the number of cases of the coronavirus continues to rise at an alarming rate, while many of the world’s leading emerging markets continued to be swamped by the pandemic. At the same time, new outbreaks in Europe and the Asia-Pacific region are threatening to slow the recovery process in those regions.

A Hard Road Back to Normality

Looking back, the economic results for the second quarter of this year were as bad, if not worse, than had been expected. China’s results were better than expected, but poor by that country’s standards. The United States’ economic decline in the second quarter was in line with expectations, but was nevertheless shocking in terms of its scale. Finally, Europe’s already-struggling economies were devastated by the impact of the pandemic, suffering losses that were hard to imagine just a few months ago.

Unfortunately, most of the signs point to lingering troubles for the global economy over the remainder of this year and into 2021. For some industries, this crisis might prove too much to overcome, leading to comprehensive shake ups for some of the world’s leading businesses and industries. At the same time, this economic crisis, like many in the past, is likely to raise political tensions even higher than they have been in recent years. As such, while the worst is likely behind us in terms of falling economic output, we are far from being out of the woods, with many challenges still forthcoming before the global economy can fully recovery from this devastating crisis.