Now, fears are growing that the downturn could be far more punishing and long lasting than initially feared — potentially enduring into next year, and even beyond — as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth.
“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.”
But even after the virus is tamed — and no one really knows when that will be — the world that emerges is likely to be choked with trouble, challenging the recovery. Mass joblessness exacts societal costs. Widespread bankruptcy could leave industry in a weakened state, depleted of investment and innovation.
Trafalgar Square in London (March 27). -Andrew Testa for The New York Times
Households may remain agitated and risk averse, making them prone to thrift. Some social distancing measures could remain indefinitely. Consumer spending amounts to roughly two-thirds of economic activity worldwide. If anxiety endures and people are reluctant to spend, expansion will be limited — especially as continued vigilance against the coronavirus may be required for years.
“The psychology won’t just bounce back,” said Charles Dumas, chief economist at TS Lombard, an investment research firm in London. “People have had a real shock. The recovery will be slow, and certain behavior patterns are going to change, if not forever at least for a long while.”
Rising stock prices in the United States have in recent years propelled spending. Millions of people are now filing claims for unemployment benefits, while wealthier households are absorbing the reality of substantially diminished retirement savings.
Americans boosted their rates of savings significantly in the years after the Great Depression. Fear and tarnished credit limited reliance on borrowing. That could happen again.
Rush-hour traffic has begun to pick up again in Beijing (March 17). -Giulia Marchi for The New York Times
“The loss of income on the labor front is tremendous,” Mr. Dumas said. “The loss of value in the wealth effect is also very strong.”
The sense of alarm is enhanced by the fact that every inhabited part of the globe is now in trouble.
Sydney Harbor and the Sydney Opera House (March 26). -Matthew Abbott for The New York Times
The global recession that followed the financial crisis of 2008 beggared that thesis. The current downturn presents an even more extreme event — a worldwide emergency that has left no safe haven.
When the pandemic emerged, initially in central China, it was viewed as a substantial threat to that economy. Even as China closed itself off, conventional wisdom held that, at worst, large international companies like Apple and General Motors would suffer lost sales to Chinese consumers, while manufacturers elsewhere would struggle to secure parts made in Chinese factories.
The Dumbo section of Brooklyn (March 28). -Victor J. Blue for The New York Times
Oxford Economics estimates that the global economy will contract marginally this year, before improving by June. But this view is likely to be revised down sharply, Mr. McFee said.
The Dongfeng Honda auto plant in Wuhan, China (March 23). -Agence France-Presse — Getty Images
Between now and the end of next year, developing countries are on the hook to repay some $2.7 trillion in debt, according to a report released Monday by the U.N. trade body. In normal times, they could afford to roll most of that debt into new loans. But the abrupt exodus of money has prompted investors to charge higher rates of interest for new loans.
A barber waiting for customers in São Paulo, Brazil (March 20). -Victor Moriyama for The New York Times
In the most optimistic view, the fix is already underway. China has effectively contained the virus and is beginning to get back to work, though gradually. If Chinese factories spring back to life, that will ripple out across the globe, generating demand for computer chips made in Taiwan, copper mined in Zambia and soybeans grown in Argentina.