World faces worst crisis since Great Depression

Great slump: By 1933, unemployment in the USA was at 25 per cent.

Will there be another Great Depression? Experts warn that the coronavirus pandemic will provoke the most significant economic collapse in decades. But others argue that the crisis is unique.

Following an announcement from the Office for Budget Responsibility that the UK economy could shrink by up to 35% this year, Chancellor Rishi Sunak said, “These are tough times, and there will be more to come."

Indeed, the International Monetary Fund has forecast that the global economy will shrink by 3% during 2020 – far worse than its 0.1% dip during the recession of 2008. They expect this year to be the worst since the Great Depression of the 1930s.

The Great Depression was a period of four years, between 1929 and 1933, during which the US economy kept shrinking and the global economy struggled.

The crisis was most severe in the US, where the unemployment rate remained in double figures for a decade, peaking at over 20% in 1933. The US economy shrank by an abysmal 50% during this period.

Though the scale of the financial impact caused by the coronavirus might be similar to that of a major recession (at least in the short term), many economists warn that our current predicament is quite different to that of the 1930s.

They have argued that the economic crisis engendered by the fight against Covid-19 is much more similar to that caused by a natural disaster. There is no financial cause for the recession – the world economy did not break – it was simply put on hold by leading governments while they dealt with the virus. This could allow any recovery to be quicker and smoother.

So, will there be another Great Depression?

Recess or Recession

No. This is an entirely different type of crisis to a financial depression. The economy is a beast of our own making. We can get it up and running again.

Yes. The longer it takes, the more difficult it will be for the economy to recover. It took the US over a decade to recover from the last crisis of this scale.

You Decide

  1. Ask someone in your home how long they think the economy will be affected by the coronavirus.

Activities

  1. Imagine the world 10 years from now. Write a list of all the jobs you think might change as a result of the pandemic.

Some People Say...

“It’s a recession when your neighbour loses his job; it’s a depression when you lose your own.”

Harry S Truman (1884-1972), 33rd US president

What do you think?

Q & A

What do we know?
Three months ago, the IMF had forecast economic growth for the average person in 160 countries for 2020. Now, it expects negative income growth in 170 countries. Former US Federal Reserve Chairman Ben Bernanke believes that the Great Depression is “not a very good comparison” to the current situation. He said: “This is like a natural disaster, and the response is more like an emergency relief.”
What do we not know?
We do not know how long most countries will have to keep their economies locked down. We do not know how many jobs that are currently being lost will be impossible to regain. When the virus is overcome, we do not know whether people will be psychologically ready to spend money like they used to, or even go back to work.

Word Watch

Office for Budget Responsibility
A public body funded by the UK Treasury that provides independent economic forecasts and analysis of the public finances.
International Monetary Fund
An international organisation founded after World War Two, committed to promoting international cooperation, international trade, and sustainable economic growth.
Recession
A recession is when for two consecutive quarters (six months) a country does not make more money than it had done beforehand. This relative reduction in productivity and output is seen as temporary.
Great Depression
Negative economic growth and rising unemployment over a sustained period of time. Such events are rare. The 1930s in the US is the best known example.
Abysmal
Something that is extremely bad.
Predicament
A similar word to destiny, the predicted outcome of a situation. Largely, a negative word that refers to something bad but unavoidable.
Engendered
Cause or create a particular sensation or situation.
Recovery
The phase of a business cycle following a recession, during which employment and economic growth returns to pre-crisis levels.

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