Almost every country in the world is likely to be affected by the global recession, and the UK who is already facing financial uncertainty from Brexit, will be no exception. Millions of people are out of work, financial markets have been rocked and supply chains have faced dramatic disruption as factories all over the world closed their doors. Even though countries are now moving to ease lockdown restrictions, the coronavirus pandemic has already inflicted significant financial damage on the global economy.
What is a recession?
A recession is when an economy contracts over a six-moth period.
It is usually accepted that a country has gone into recession if an economy contracts for two consecutive quarters, which is measured mainly by Gross Domestic Product (GDP).
Recessions are the length of a time that a country, region or the world is shrinking as opposed to growing. While a recession lasts for at least six months, there is no defined limit on how long it can go on.
If a recession is particularly hard-hitting over a long period of time, it is called a depression.
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The most famous of these was the Great Depression of 1929, which continued into the 1930s and saw US GDP decline by one third by 1933.
What does a recession mean for the UK?
The Treasury’s official financial forecaster, the Office for Budget Responsibility, has estimated the UK GDP could fall by a huge 35 percent in the second quarter of this year (between April and June).
If this proves true, it would make it the worst economic slump in more than 300 years, since the Great Frost of 1709.
The OBR said it expects unemployment to rise by more than two million to 10 percent, while the Government deficit will rise to £237billion in 2020 to 2021, equating to 14 percent of GDP.
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Over the course of the whole year, the OBR predicts a 12.8 percent contraction in GDP.
Overall, the global economy is expected to shrink by three percent in 2020, which makes it significantly worse than the 2008 financial crash and the worst in the world since the Great Depression.
Of the bigger countries in the world, only China and India are expected to see GDP growth this year.
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How long will it last?
The estimations for the UK are based around the prediction that the lockdown will last for three months, terminating on June 23, after which economic activity will slowly return to normal within the following three months.
What will actually happen to the economy still remains unknown and uncertain.
Some social restrictions will be in place for much longer, and a return to normal life whereby pubs, restaurants, bars and sports matches are open to the public seems increasingly unlikely.
If this is the case, the effect on the British economy could be far worse than predictions state.
When will the economy recover?
If a six-month lockdown were to be in place, the OBR expects GDP to grow by 27 percent in the third quarter (July to September) and 21 percent in the fourth quarter (October to December).
If this scenario were to take effect, the GDP will return to the same level it was before the virus by the end of the year.
Economist Kemar Whyte of the National Institute of Economic and Social Research said: “The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate.
“Nonetheless, instant and significant recovery remain a distinct possibility if the spread of the virus comes to halt quickly.”
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