The Global Economy Draws a 'W' Shape Due to COVID-19: "Temporary Recovery Followed by Economic Downturn"

Increased Risk of COVID-19 Resurgence This Winter
Ongoing Real Economy Crisis Including Corporate Bankruptcies and Unemployment

[Asia Economy Reporter Naju-seok] There are concerns that the economy in the second half of this year may only see a brief surge. This is because various adverse factors, such as the possibility of a resurgence of the novel coronavirus infection (COVID-19), are scattered everywhere. It is forecasted that the economy will show a recovery trend resembling a so-called W shape.

[Image source=AP Yonhap News]

The U.S. White House currently predicts that the economy will form a V shape this summer. As various lockdown measures taken to prevent the spread of COVID-19 infections are lifted, the economy is expected to surge rapidly at once. On the other hand, the Washington Post reported on the 22nd (local time) that the number of people predicting a W-shaped economic model has been increasing recently.

A W-shaped economic recovery is a forecast model where the economy appears to improve temporarily but then falls back into a downward phase.

There are mainly two directions in the W-shaped economic forecast. First, there are those who predict a W-shaped economic model based on the COVID-19 situation. They make this prediction on the premise that COVID-19 will not end this summer. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID) under the U.S. National Institutes of Health, who is leading the U.S. COVID-19 response, predicted, "We will not return to what we consider normal life within this year."

Robert Redfield, director of the U.S. Centers for Disease Control and Prevention (CDC), pointed out, "There is a possibility that COVID-19 will return this winter," adding, "The situation could be more difficult than what we have experienced so far." Even if the situation improves in late spring or summer this year, COVID-19 could resurge in winter, preventing economic activities again to contain the spread.

There is also another explanation for the W-shaped recovery phase. This scenario involves worsening economic conditions as companies face a chain of bankruptcies due to the impact of COVID-19. Workers may fail to find reemployment, companies may be unable to pay wages, and there could be widespread anxiety over who might go bankrupt next. Ernie Tedeschi, a former economist at the U.S. Treasury Department, pointed out, "Even those who have jobs will likely reduce consumption and try to save money more than usual, which could further delay economic recovery."

According to Restart Energy, an energy consulting firm, if oil prices remain in the $20 range until the end of next year, more than 500 U.S. oil exploration and production companies could go bankrupt; if prices stay in the $10 range, over 1,100 companies could fail. The low oil prices caused by COVID-19 are collapsing the U.S. energy industry, raising concerns about further economic decline as a result.

Unemployment is also a worrying issue. When people become unemployed, consumption decreases, and difficulties arise in repaying mortgage loans. In the U.S., there is a forecast that 25 million people will be unemployed this spring. Although the economy may seem to revive briefly as COVID-19 eases, it eventually enters another crisis phase.

The Washington Post pointed out that although the U.S. government has introduced nearly $3 trillion in COVID-19 measures, these measures are mainly short-term solutions.

Diane Swonk, chief economist at global accounting firm Grant Thornton, said, "It is a mistaken judgment to claim that the world will return to normal within three to six months," adding, "The global economy is in the middle of an ice age. If the global economy is liberated, we must also consider another wave. There will be a flood."

This content was produced with the assistance of AI translation services.