let's talk about the economy stock markets around the world have been
pounded older prices have fallen off the cliff in just one week 3.3 million
Americans apply for unemployment almost 5 times the record a week later another
6.6 million we had to make the impossible decision to layoff 98 percent
of our workforce this morning as kovat 19 spreads the global economy is
shutting down and it's unlike anything you've ever seen
a recession at least as bad as during the global financial crisis or worse but
what makes this collapse different what will it take to recover and are we
headed for a depression
welcome to another episode of start here from quarantine in my hotel room when it
comes to the economy we've really never been here before
not like this even though we have lived through some huge economic shocks there
was the Great Depression that started in 1929 and lasted a decade back in 2001
the 9/11 attacks also badly damaged the economy and of course the airline
industry the 2007 subprime mortgage crisis in the u.s. led to a global
financial crisis and triggered the Great Recession the longest in US history some
countries still haven't recovered and now there's a pandemic the swiftness and
severity of the shock to the global economy that is absolutely unprecedented
this financial crisis is both different and worse because first and foremost
it's a health crisis so economists know we can't just fix the economy that's
like trying to fix your house while it's still on fire if we don't try to control
the spread of the virus then the suffering would be much bigger let's
take another look at the graph from our last episode it shows a steep spike in
the number of cases if we don't contain kovat 19 and the pressure that puts on
hospitals so countries right now are trying to flatten that curve by locking
down and enforcing social distancing but that has consequences the more
aggressively we try to slow the spread and save lives the deeper the recession
so the irony is that to save the economy you have to shut it down first
that's why economists expect a serious recession maybe even a depression which
goes on for longer and is more severe well matters are more than avoiding an
all-out depression is protecting people's house particularly protecting
the most vulnerable and so doing whatever we can to address the health
impacts of the crisis for a lot of people this
is going to be painful for some it already is I'm on the lookout to speak
to people who are really worried about their livelihoods because of the
lockdowns nearly every sector of the economy is
getting hit right now but service jobs are most at risk
they require face time with customers and everyone's being told to stay home
look at India where 1.3 billion people are under lockdown 80% of the workforce
are self employed or earn a daily wage 120 million of them are migrant workers
many have now lost their jobs in the cities
in South Africa soldiers are on patrol to make sure 57 million people stay home
the unemployment rate there before kovin my team was already 30% almost half of
South Africans who were poor the reality is that you know if they don't go and
work and it could mean the difference between a meal or not so how can you
even get your head around that kind of global unemployment and economic
stagnation you might be familiar with the law of supply and demand
well the coronavirus has managed to take out both first there was a supply shock
as factories businesses and borders closed that triggered a demand shock
because industries don't need raw materials if they aren't producing and
the lockdowns mean people aren't buying things or can't afford to because
they're not earning money look at China which in today's globalized economy is
the factory to the world the Kona virus outbreak virtually shut it down
it's productions dropped by 25% over the last three months that is a big shock to
the world economy China is also a massive buyer on the international
market things like raw materials all kinds of cars and agricultural products
so that's also had an effect the biggest concern in China China was already
heading for minus 1% projection on GDP this year and once the China is getting
out of it its own health crisis Europe their biggest market isn't getting into
theirs which basically means that we are seeing a huge demand contraction in the
international trade as the virus began to spread those supply and demand shocks
spread to other countries too then the markets started to panic stock indexes
in New York London Tokyo all had devastating sessions several times over
in the US the Dow lost almost 3,000 points in just one day the most ever so
how do we fix all this again economists say we need to deal with the
pandemic first but there are things that both central banks and governments are
doing to ease some of the pain the job of a central bank is to make sure
there's a steady supply of money flowing through the global financial system and
in a time of crisis they also make sure the credit markets don't freeze up so
central banks around the world have pumped trillions of dollars into the
banking system to make sure banks and businesses can bounce back when this is
all over they've also cut interest rates to make
loans even cheaper the central bank in the United States the Federal Reserve
System has done something else too it's made sure other central banks around the
world can borrow enough US dollars it's the currency the world runs on u.s.
dollars are to businesses what toilet paper is to households they don't want
to run out of US Dollars before this crisis is passed but central bank
heroics alone enough governments need to step up to
world leaders have pledged hundreds of billions of dollars to help people
businesses and the health sector battle this crisis the British government for
example put forward four hundred and thirty five billion dollars of the
United Kingdom GDP to try to get us through this crisis because it is a
method of life for this in the US the federal government came up
with a 2.2 trillion dollar relief package that's about ten percent of its
GDP the largest in American history this will deliver urgently needed relief to
our nation's families workers and businesses but not everyone has
convinced those rescue packages going to be enough dr. doom Nouriel Roubini
The Economist who called the 2008 financial crisis two years before it
happened he's definitely not convinced in fact he's warning that containment
measures had not been sufficient enough and that the fiscal stimulus package is
neither large enough nor is it been enacted swiftly enough to seriously
mitigate the risks not just of a recession everybody agrees that's going
to happen but to mitigate the risks of possibly a depression but other
countries just don't have that kind of cash especially if they're struggling
economically or dealing with conflict famine even other diseases the UN
forecasts that income losses in developing countries because of the
coronavirus could exceed two hundred and twenty billion dollars
the economies that will have the toughest time crawling out of it are
really the poorest nations because they were in the worst position going into
the crisis and they will have the hardest time shaking off the negative
effects of it economists are bracing for things to get worse in the short term
but they also see this as an opportunity to fix what was broken they have a
saying never let a good crisis go to waste we do also have to think about
sustainability about the sustainability of our planet
that's about the health and integrity of our ecosystems do we have a resilient
economy do we have a resilient health system food production systems can we be
sure that when a crisis like this happens and hits the economy we are able
to go on feeding people and keeping people healthy to stop a descent into
social instability which can very often follow from a deep and protracted
depression those are big questions for world leaders to answer for right now
many of us economists included are looking to them to make some tough
decisions to fight this pandemic and relieve the pain a lot of people are
already hurting
we don't know when we'll be back on the start here set but not to worry we're
still going to be bringing you more episodes any way we can in the meantime
our website aljazeera.com has all the latest on the corona virus pandemic I'll
see you next week