The novel coronavirus pandemic forced the world into lockdown, which further induced financial slowdown. After 12 years, this sudden economic downturn evoked the painful memories of the Great Recession, the longest period of an economic slump since the Great Depression(the 1930s). It lasted approximately 18 months or six quarters, starting from December 2007 and ending in June 2009, reaching its peak in September 2008.
Today, when many countries are still facing a new surge in infections, and there is no precise indication of a successful vaccine in the near future, even the well-established businesses face various challenges in keeping the revenue coming. IT experts advise having a full digital transformation interwoven with wider operative-initiatives.
Differences Between The 2008 And 2020 Recession
All recessions are different in terms of their proximate cause. The reasons being monetary-policy tightening by the US Federal Reserve(Several post-World War II recessions), large oil shocks(1973-75 and 1981-82), dotcom bubble burst(2001), deregulation in the financial industry(2008).
Finally, during the COVID recession, an unprecedented lockdown halted the entire in-person "non-essential" economy. Effective therapeutic and vaccine deployment is crucial to have the economy return to its previous performance peaks, but official forecasts don't see that happening until late 2022. Besides, fiscal, trade, monetary, and regulatory policies are also as important. And so, policymakers and commentators are examining previous episodes hoping to find an effective response.
The consequences of the Great Recession and the 2020 pandemic recession may appear to be similar, but there are certain noteworthy differences in the characteristics of both. GoodFirms interviewed 50+ entrepreneurs worldwide to determine how these two situations compare, which have different sources of origin.
Below are insights shared by experts on how the Great Virus Crisis differs from the Great Recession.
1. Severe Collapse In Short Time Without Any Warning Signal
"The 2008's Great recession, the global financial crisis, was more of a crippling crunch in the banking or payments and settlements systems, caused by the lack of demand. But, the current recession is not caused by pre-existing economic weaknesses," says Mike Allen, Founder of Fashion Jacket.
He says, "The difference between these two is that the 2008 recession showed its signs starting from late 2005. Moreover, the Great Recession of 2008 caused no businesses to shut down, although the effect was long term that started early and took a long time to end. The current recession was not predicted, so there was no plan to prevent it."
2. The Atmosphere And The Velocity Is Different
Adem Selita, CEO & Co-founder of Debt Relief Company, says, "First, I would like to address the 'feel' of this current recession. The general population's view about the economy has been completely different from what it was during the Great Recession. The economy now is artificially 'shut down.' The velocity with which this recession occurred has never been seen before (the closest comparison is the Great Depression). The Great Recession (although also a massive and prompt decline in economic activity) was not as swift as the current one."
3) This Time, Banks Will Play An Essential Role In Saving The Economy
Israel Gaudette, Founder of Link Tracker Pro, says, "In the 2008 recession, the source of the problem for financial markets was the banks. I would say that this time, banks will play an essential role in saving the economy. I am sure that the impact of this great pandemic will overshadow the financial crisis brought by the 2008 great recession. It will closely resemble the great depression of the 1930s."
4) Housing Market Is Comparatively 'Healthier'
Sean Nguyen, Director at Internet Advisor, says, "An interesting aspect here is housing. Last time, the housing crash was huge, and its effects were devastating. But now, prices are going up all over the place. So far, the only companies that fell were the ones that were barely hanging by a thread anyway. We'll have to see if any stable giants are showing cracks."
5) Lack Of Modern Blueprint
"In 2008's Great Recession, the worst economic collapse of our time, we knew that the market would eventually recover. Because we have been able to collect enough data from other recessions and economic declines and study the patterns," says Terrance Wilson, Owner of The Funding Clinic. He believes that the 2020 recession is not due to reckless financial decisions that can be repaired over time with regulatory mandates.
Terrance further adds, "We can't make Covid-19 illegal to fix things. There is not a modern blueprint for it because the last time we dealt with anything of this caliber was 100 years ago when there were fewer people on the planet and nothing close to the concept of the internet or social media to spread both accurate and misinformation."
Comparison Of The Relief Measures For Both The Recessions
The leading economies have been assigning economic relief packages to propel them through the crisis. The U.S. provides the most substantial relief package, still only 1.9 times bigger than in 2008 – that’s 10% of GDP compared to 5.3% of GDP last time. However, the U.S. response is arguably smaller than other countries, such as the UK, Germany, France at similar stages of the pandemic. The average package by the G7 countries is 4.4 times bigger than last time.
Conclusion
The coronavirus recession is quite different from that of 2007-09 in terms of accelerating factors, atmosphere, process, banks' role, and the effects on the realty sector. Despite having effects globally, the Great Recession was most pronounced in the U.S. The COVID-19 recession is predicted to be more than twice as deep as the recession associated with the 2007-09 global financial crisis.
In the 2020 recession, economic conditions are too closely tied to the direction that pandemic takes. Hence it isn't easy to forecast with confidence the course of recovery. The possible long-term effects are - a huge loss of small businesses and human capital (because of unemployment and online-only instructions), accelerated digital transformation, and somewhat permanent telecommuting. Some sectors will have increased concentration while some may enjoy the decreased competition. Experts suggest that policymakers must focus on having additional fiscal measures on tax reduction and implement a credible fiscal consolidation plan as per the conditions to be in better shape when the next big crisis arrives.
Read GoodFirm’s research to find out about the viability of new businesses, the challenges they might face, and the strategies they must implement to survive and succeed during tough economic times -
