The IMF has already warned that the impending global economic recession because of the coronavirus pandemic is likely to be worse than the 2008 global financial crisis and at par with the Great Depression of the 1930s. .
But according to the Economist Intelligence Unit (EIU), the predicted recession by the IMF and other global bodies could also be followed by another “possibly much worse downturn”.
In order to help prop up their economies, assistance and stimulus packages worth of trillions of dollars are being announced by governments of different countries.
This has raised the possibility of increased government debts to fund the assistance packages which has in turn prompted the EIU to warn of a second recession for the global economy because of the huge sovereign debts that the government are piling up because of the never before announced volume of stimulus packages.
The global economy would shrink at its fastest pace in decades, the International Monetary Fund (IMF) had warned earlier this week which has raised concerns that the impending recession for the world could be the worst that the world has witnessed since the Great Depression of the 1930s.
But a possible debt crisis from governments with weak balance sheets could push the global economy into a second wave of recession, the EIU has now warned.
“Many of the European countries that are among the worst affected by the pandemic, such as Italy and Spain, already had weak fiscal positions before the outbreak,” said Agathe Demarais, the EIU’s global forecasting director.
“A potential debt crisis in any of these countries would quickly spread to other developed countries and emerging markets, sending the global economy into another – possibly much worse – downturn,” she added.
While this is not a central scenario for the EIU, “the long-term impact on growth of mounting fiscal deficits across Western countries is unknown.” The EIU warned that the scenario could become far more realistic if there is a second, or possibly third, wave of the pandemic.
Even after governments lifts lockdown, relaxes social distancing norms and allows opening up of non-essential business, it would take a while before consumer demand to regain the levels that existed before the coronavirus pandemic crisis.
On the other hand, along with the relaxation for business to start operating, global supply chains may still be disrupted because of different timings of the relaxaiton of the strict restrictions imposed by different governments which is likely to create bottlenecks, the EIU said.
“The recovery in the global economy will only be gradual, all the more so as countries will lift lockdowns at different points in time.” It pointed out.
(Adapted from BBC.com)