International Monetary Fund considers the Corona-induced recession comparable to the Great Depression of the 1930s. It even finds the forecast of a 5.8 percent growth for next year as a slight improvement.
This article is written by Sirous Tosh on November 1, 2020, and is available to the public for free.
Commentators have recently added a new form of economic recovery diagrams, formerly known by “V”, “U”, “W”, “L” and “I”, to the alphabetic culture of economic recovery routes. The “K” diagram, which reflects stock market performance and shows a sharp decline following clear divergence paths, actually manifests the important dynamics created by the global divide.
The truth is that the concentration of wealth in one sector leads to the unequal distribution of income. Given the historical background, the wealthy and affluent class of societies have the power to “influence the purchasing power”, “determine the public discourse”, and “shape and guide the political direction” in different communities.
Reducing restrictions and cessation of economic activities can initially increase the level of production. However, enterprises’ effects of unemployment and bankruptcy may act as a speed bump for the production-level upgrade. As a result, two downward trends must be gone through to return the economy to its previous trend. This is also possible if another wave of Corona occurs. If the downtime continues this year, the likelihood will increase, and the economy will exit from the current recession in a W-shaped direction.
The economy moves in a U-shaped path.
The economy will follow a U-shaped path if economic recovery lasts for more than two seasons. Since the global economic losses have been faster and more profound than in the 2008–2009 financial crisis, such a trend is more likely to lead to economic recovery.
Accordingly, the effect of the cessation of economic activities will continue for some time after their reopening because the reopening of economic activities will gradually take place, social distancing will continue, and the tourism industry will continue to be affected by the Coronavirus.
The world’s seven industrialized nations’ financial markets lost an average of 33% of their value from mid-February to mid-March; The figure was about 55 percent in the 18-month crisis from 2007 to 2009.
Economically, globalization exacerbates several conditions in the global economy. The first of these conditions is material stagnation; A combination of low productivity growth and a lack of private investment return.
This allows people to avoid risk-taking and further save more, and reduce demand and innovation. The second is the gap widening between rich countries (along with several emerging markets) and other parts of the world in crisis resistance. Economic nationalism will increasingly lead governments to withdraw their economies from the rest of the world. Third, to some extent, due to the leap toward apparent security and risk, the world’s developing economies continue to rely on the US dollar for credit and trade.
It can be said that Corona is an excellent opportunity for the economies of developing countries such as Iran to close the gap with the economies of developed countries. However, this opportunity has negative consequences and the heavy pressure of the Corona recession. Therefore, it will make the gap between our economy and developed countries’ economies even wider in the post-Corona era if not used to grow the workforce and boost employees’ and entrepreneurs’ creativity.
The world’s economic problems due to the outbreak of the Corona are temporary. The Corona and the issues it has created for the countries’ economies will eventually be resolved in a short period. So the return to normal conditions of the world economy and the Iranian economy will highlight the capital market’s unique role in equipping financial resources.
All of this suggests that, in the post-corona era, the most critical challenge for countries will be economics, not politics. Governments may be able to find a short-term solution to small businesses and enterprises’ current situation. Still, they may not be able to set a clear horizon for enterprises in the long run due to shortcomings and incapacities.