Coronavirus economic crisis will be ‘worse than 2008’ as jobs dry up: Expert

A deserted street on the Italian island of Sicily as authorities tighten measures to control the spread of the coronavirus. (File photo: Reuters)

Global gross domestic product (GDP) could fall up to 30 percent in the short-term as a result of the economic crisis caused by the coronavirus pandemic, according to Professor Stephen Thomas, associate dean, MBA programmes at Cass Business School in Dubai and London.

Global markets have plummeted since the outbreak of the virus in January, with experts suggesting that the coronavirus could cause a worse recession than the 2008 financial crisis. The IMF recently said the impact of the pandemic would be “quite severe.”

“It’ll be worse, the percentage point loss of global GDP was relatively limited after 2008… This could be 10, 20, 30 percent in a relatively short run simply because people can’t go to work. And that’s what’s different,” Thomas said.

Countries have closed their borders and told local businesses to go home in a bid to combat the spread of the coronavirus, which is officially known as COVID-19. As a result, normal production has effectively ceased, having a severe knock-on effect on the economy.

“A lot of production has stopped, and that is the real damage … Suddenly the economy comes to a stop. That never happened quite with the financial crisis, the plumbing got messed up with loans and the central bank stepped in and helped the banks,” Thomas explained.

Central banking response praised

Despite the risk of a large hit to the world economy, Thomas praised the response of central banks and authorities in the speed of their response.

Central banks and governments across the world have stepped up efforts to mitigate the economic fallout of the coronavirus. In the US, lawmakers are debating a trillion-dollar stimulus plan. Meanwhile, in the Middle East, authorities have pledged billions in stimulus, with additional fund announcements announced periodically.

“The central banks have responded immediately, no delays. That’s about the best thing that could happen… The central banks know what they have got to do, I think the governments know what they have got to do. And we'll worry about paying for it later,” said Thomas.

Once the coronavirus has gone, or been contained, the economies will be “booming” very quickly, he added, as the demand for products and services will be very high.

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Last Update: Wednesday, 20 May 2020 KSA 10:05 - GMT 07:05
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