Time Scenarios for Leaving Behind Economic Recession Caused by Corona

2020/04/04 | Economy, Note, top news

Strategic Council Online: Service sector activists are the most important victims of the Corona crisis, with more than one-sixth of those working in these sectors expected to lose their jobs. Reza Majidzadeh - Researcher on Development Economics

The International Monetary Fund has recently warned of the world entering a new era of economic recession. In the three weeks after the Corona epidemic, the US stock index plunged 32%, while it had fallen just 24% during the 2008 financial crisis. Beyond that comparison, the ambiguity about how long will it take to fully overcome the Corona crisis and manage its economic consequences adds to the concerns about the duration and depth of the “Corona recession”.

Previous global downturns have spread from one or more large economies to other economies, but the distinctive point of the Corona recession is that in addition to the effects of the spillovers from one country to another, especially in today’s network economy, each country also has its own set of challenges. As a result, depending on the volume of foreign trade and the importance of countries in world trade, the wheels of recession contagion will be running.

In another example, after the outbreak of SARS in 2003, the 9/11 attacks, and the 2008 financial crisis, crude oil prices dropped by 12%, but in the first days of the global Corona disease and Russia’s retaliation for US oil sanctions and Moscow’s opposition to reducing oil output, three weeks after the start of the Corona crisis, crude oil prices fell 58 per cent. However, during the financial crisis of 2008, after two months, oil prices were down this much!

Currently, Iran’s oil price has fallen to $14, while in the budget of the calendar year 99 (2020 – 2021) the government has projected export of one million barrels at $50 per barrel. After all, service sector activists are the most important victims of the Corona crisis, and more than one-sixth of those working in these sectors are expected to lose their jobs. The outbreak of Corona at the most important tourism season in Iran has caused the tourism industry, land and air transport, hospitality, entertainment and other related activities to be severely damaged and the Corona recession has spread to the housing sector as well.

The above figures show that the threat of the “Corona recession” is very serious and could have grave consequences for the world economies compared to the Great Depression of 1929. The foreign trade model, the role of the state in the economy, the leading players in the economy, and the driving force of economic growth are the most important factors that can affect the severity of the crisis. Among the economic activities within the national economy are also factors that can determine the duration of the crisis and recovery.

To do this, it is necessary to evaluate the most optimistic and the most pessimistic scenarios and the driving force of each of them. In a snapshot, there are three quick recovery scenarios for early summer 99, late summer recovery and mid-autumn recovery. The likelihood of any such scenario depends heavily on the implementation of quarantine or social distancing plans, crisis management and assistance to affected businesses, and the cooperation of all citizens in disrupting the virus transmission chain.

Resumption of semi-closed businesses will be accelerated and the rate of recession will be lower if the recovery is accelerated by tight control over virus spread and success in the social spacing program. If it recovers in mid-summer, the economic contraction will be more severe and if it recovers from mid-autumn, it will experience the deepest contraction.

For the Iranian economy, international sanctions and lack of access to international resources is a threat that will deepen the impact of the recession and will result in high human and social costs. The current situation shows that at least until the end of the current term of Donald Trump presidency in the United States and regardless of who wins the next round of elections, the chances of lifting international sanctions and restrictions on international foreign trade for Iran are close to zero.

Therefore, the most feasible approach is to model the success factor of the Coronavirus in its global epidemic, namely the Phoenix pattern. That is, the Coronavirus, regardless of race, nationality, class, and other factors, affects everybody, and these viruses have formed a worldwide syndrome.

The Phoenix paradigm in managing the financial crisis caused by Corona means that, alongside useful measures such as giving businesses harmed by Corona some respite, in an environment filled with the confidence of firms to take the necessary supportive, competitive, non-discriminatory and corruption-free measures, each district gets connected like a chain and meet each other’s needs. The government can support, through guidance and encouragement policies, the production of more important products and deeper links with other sectors to be a strong drive to defeat the Corona crisis.

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