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What economic cycles teach us about what to expect post coronavirus?

Coronavirus covid-19

A large question surrounding the world’s current economic situation is the impact of coronavirus on global economies, and how this pandemic relates to economic cycles as a whole.  Fundamentally, economies go through periods of ups and downs in accordance with the free market in combination with shock factors.  This can be observed in many of the financial meltdowns in history and is relevant now in relation to the recent shock starting the recession:  the coronavirus pandemic and shutting down world economies.  This recession was manually created by shutting down the economy, and there may not be an immediate solution to reopening the economy and expecting a return to normalcy.  According to many experts, we can expect a delay until the world economy returns back to normal.

This current recession can be measured in terms of depth, diffusion, and duration.  These measures help to understand recessions and determine their severity.  With respect to the current recession, in terms of depth, the amount of jobs lost and the dip in GDP are significantly large.  In terms of diffusion, which relates to how it is spreading across the economy, it is prevalent over all industries and areas of business.  Almost every industry is hurting.  In terms of duration, the re-opening of the economy may begin a process of recovery slightly faster than previous recessions.  However, the beginning and end of a recession are not symmetric, as increasing consumer confidence and nourishing the economy back to health will take much longer than shutting it all down.

World economic declines may be stabilizing and no longer plunging at record levels, while perhaps reaching a bottoming out.  The main aspect to analyze is the bullwhip effect:  a theory stating that the farther away an industry is from the end consumer, the larger their economic cycle.  This means they will feel the negative effects at a greater level.  In the current situation, the massive drop in consumer demand has a negative effect on resource distributors.  These suppliers are being crushed, which is affecting economies like China.  In part, this is also the reason for the drop in commodity prices.

In general, a return to normal may take longer than expected and will take more than just re-opening the economies.  The effects of shutting down the global economy will be felt over the upcoming years.

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