By: Peter S. Goodman, New York Times

The world is almost certainly ensnared in a devastating recession delivered by the coronavirus pandemic. Now, fears are growing that the downturn could be far more punishing and long lasting than initially feared potentially enduring into next year, and even beyond as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth.

The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.

Even after the virus is tamed and no one really knows when that will be the world that emerges is likely to be choked with trouble, challenging the recovery. Mass joblessness exacts societal costs. Widespread bankruptcy could leave industry in a weakened state, depleted of investment and innovation.

Households may remain agitated and risk averse, making them prone to thrift. Some social distancing measures could remain indefinitely. Consumer spending amounts to roughly two-thirds of economic activity worldwide. If anxiety endures and people are reluctant to spend, expansion will be limited especially as continued vigilance against the coronavirus may be required for years.

People have had a real shock. The recovery will be slow, and certain behavior patterns are going to change, if not forever at least for a long while.

The sense of alarm is enhanced by the fact that every inhabited part of the globe is now in trouble. The United States, the world’s largest economy, is almost certainly in a recession. So is Europe. So probably are significant economies like Canada, Japan, South Korea, Singapore, Brazil, Argentina and Mexico. China, the world’s second-largest economy, is expected to grow by only 2 percent this year.

Trillions of dollars in credit and loan guarantees dispensed by central banks and governments in the United States and Europe have perhaps cushioned the most developed economies. That may prevent large numbers of businesses from failing,  while ensuring that workers who lose jobs will be able to stay current on their bills.

Worldwide, foreign direct investment is on track to decline by 40 percent this year, according to the United Nations Conference on Trade and Development. This threatens lasting damage to global production networks and supply chains. It will likely take two to three years for most economies to return to their pre-pandemic levels of output.

In developing countries, the consequences are already severe. Not only is capital fleeing, but a plunge in commodity prices especially oil is assailing many countries, among them Mexico, Chile and Nigeria. China’s slowdown is rippling out to countries that supply Chinese factories with components, from Indonesia to South Korea.

Between now and the end of next year, developing countries are on the hook to repay some $2.7 trillion in debt, according to a report released by the U.N. trade body. In normal times, they could afford to roll most of that debt into new loans. But the abrupt exodus of money has prompted investors to charge higher rates of interest for new loans. The U.N. body called for a $2.5 trillion rescue for developing countries - $1 trillion in loans from the International Monetary Fund, another $1 trillion in debt forgiveness from a broad range of creditors and $500 billion for health recovery.

The great fear for developing countries is that the economic shocks have actually hit most of them before the health shocks have really begin to hit.

According to McKinsey consultants and economists from Oxford Economics if the virus is successfully controlled and economic restrictions are lifted after two to three months, economic activity falls 8% in the first half of the year, but then rebounds to its pre-pandemic level by the end of 2020.

If, however, the virus is not contained within the second quarter, and social distancing measures continue into the summer, McKinsey expects GDP could take more than two years to climb back up to  its pre-coronavirus level. If we're in a situation where we have a third of the workforce not able to go to work through the summer, we’ll see a lot of bankruptcies a lot  corporate debt defaults.

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