An unprecedented economic recession hit the world one year ago. For the first time, the global economy contracted simultaneously, making it difficult for governments and households to adapt.
Other recessions were different. People traveled to different countries in search of a job or better life, with some success. According to the theory of the business cycle, the main reason why investors cannot apply it globally is that in some parts of the world, an economy may be in recession, while in some other parts, in expansion.
Not this time. Because of the global spread, the world has it more difficult than ever to bounce back.
It will, eventually, but at a hefty cost. Lives continue to be lost as the virus fights back at every attempt to reopen economic and social activity. All over the world, the infection rate increased recently, with an emphasis on Europe.
The bright spot? The United States and Canada, where the vaccination efforts paid off. This is what brings hope and why it is perhaps easier to move on as the light at the end of the tunnel gets closer.
Lessons from the Pandemic
The world will never be the same anymore. Right from the start, the global economy faced one of its worst nightmares – dependency on Asian countries for low-cost goods. For example, face masks were in high demand but low supply in Europe and other advanced economies at the start of the pandemic. Moving forward, globalization will take a step back as countries will not increase their dependency on any other nation so easily again.
We also learned that the price of a commodity could settle into negative territory. Oil futures settled close to -$40 in April 2020, perhaps the most spectacular chart of all times for financial markets.
Fiscal spending exploded as never before. How to fight an invisible enemy if not by providing as much helps as possible as quickly as possible? The world cannot bounce back at the same time, but, together with the advanced economies, the other ones will have an easier time to do so.
Solidarity increased. While vaccine rollout differed from country to country, sharing did not stop despite inherent difficulties in fighting the virus locally. The best example is Europe, where most of the vaccines are produced – it still shipped the vaccines as committed, despite its population being decimated by the virus.
All in all, we learned that recessions are triggered by exogenous factors as well. If the world manages to control the outcome of excessive spending in the years ahead, we may say that a lesson was learned and mechanisms are in place to fight similar crises in the future.