COVID-19 recession
The COVID-19 recession was a global economic recession caused by COVID-19 lockdowns. The recession began in most countries in February 2020. After a year of global economic slowdown that saw stagnation of economic growth and consumer activity, the COVID-19 lockdowns and other precautions taken in early 2020 drove the global economy into crisis. Within seven months, every advanced economy had fallen to recession.
The first major sign of recession was the 2020 stock market crash, which saw major indices drop 20 to 30% in late February and March. Recovery began in early April 2020; by April 2022, the GDP for most major economies had either returned to or exceeded pre-pandemic levels and many market indices recovered or even set new records by late 2020.
The recession saw unusually high and rapid increases in unemployment in many countries. By September–October 2020, where every advanced & emerging economy had already fallen into a recession or depression more than 10 million unemployment cases had been filed in just the United States alone swamping state-funded unemployment insurance computer systems and processes. The United Nations in April 2020 had also predicted that global unemployment would wipe out 6.7% of working hours globally in the second quarter of 2020—equivalent to 195 million full-time workers. In some countries, unemployment was expected to be around 10%, with more severely affected nations from the pandemic having higher unemployment rates. Developing countries were also affected by a drop in remittances and exacerbating COVID-19 pandemic-related famines.
The recession and the accompanying 2020 Russia–Saudi Arabia oil price war led to a drop in oil prices; the collapse of tourism, the hospitality industry, and the energy industry; and a downturn in consumer activity in comparison to the previous decade. The 2021–2023 global energy crisis was driven by a global surge in demand as the world exited the early recession caused by pandemic-related lockdown measures, particularly due to strong energy demand in Asia.
This was then further exacerbated by the reaction to escalations of the Russo-Ukrainian War, culminating in the Russian invasion of Ukraine and the 2022 Russian debt default. Modeling by the World Bank suggests that in some regions a full recovery would not be able to be achieved until 2025 or beyond.
Background
Corporate debt bubble
After the 2008 financial crisis, there was a large increase in corporate debt, rising from 84% of gross world product in 2009 to 92% in 2019, or about $72 trillion. In the world's eight largest economies—China, United States, Japan, United Kingdom, France, Spain, Italy, and Germany—total corporate debt was about $51 trillion in 2019, compared to $34 trillion in 2009. If the economic climate worsens, companies with high levels of debt run the risk of being unable to make their interest payments to lenders or refinance their debt, forcing them into restructuring. The Institute of International Finance forecast in 2019 that, in an economic downturn half as severe as the 2008 crisis, $19 trillion in debt would be owed by non-financial firms without the earnings to cover the interest payments on the debt they issued. The McKinsey Global Institute warned in 2018 that the greatest risks would be to emerging markets such as China, India, and Brazil, where 25–30% of bonds have been issued by high-risk companies.2019 global economic slowdown
During 2019, the IMF reported that the world economy was going through a "synchronized slowdown", which entered into its slowest pace since the 2008 financial crisis. 'Cracks' were showing in the consumer market as global markets began to suffer through a 'sharp deterioration' of manufacturing activity. Global growth was believed to have peaked in 2017, when the world's total industrial output began to start a sustained decline in early 2018. The IMF blamed 'heightened trade and geopolitical tensions' as the main reason for the slowdown, citing Brexit and the China–United States trade war as primary reasons for slowdown in 2019, while other economists blamed liquidity issues.In April 2019, the U.S. yield curve inverted, which sparked fears of a 2020 recession across the world. The inverted yield curve and China–U.S. trade war fears prompted a sell-off in global stock markets during March 2019, which prompted more fears that a recession was imminent. Rising debt levels in the European Union and the United States had always been a concern for economists. However, in 2019, that concern was heightened during the economic slowdown, and economists began warning of a 'debt bomb' occurring during the next financial crisis. Debt in 2019 was 50% higher than that during the 2008 financial crisis. Economists have argued that this increased debt is what led to debt defaults in economies and businesses across the world during the recession. The first signs of trouble leading up to the collapse occurred in September 2019, when the US Federal Reserve began intervening in the role of investor to provide funds in the repo markets; the overnight repo rate spiked above an unprecedented 6% during that time, which would play a crucial factor in triggering the events that led up to the crash.
Trump tariffs against China
From 2018 to early 2020, U.S. President Donald Trump set tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. described as "unfair trade practices". Among those trade practices and their effects had been the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China.Trump's tariffs caused significant damage to the economy of countries around the world. In the United States, it brought struggles for farmers and manufacturers and higher prices for consumers, which resulted in the U.S. manufacturing industry entering into a "mild recession" during 2019. In other countries it also caused economic damage, including violent protests in Chile and Ecuador due to transport and energy price surges, though some countries had benefited from increased manufacturing to fill the gaps. It also led to stock market instability. Governments around the world took steps to address some of the damage caused by the tariffs. During the recession, the downturn of consumerism and manufacturing from the trade war is believed to have worsened the economic crisis.
Brexit
In Europe, the UK's planned withdrawal from the EU created uncertainty that weighed on the UK economy from 2016 to 2019, particularly by dampening business investment. UK growth was subdued in 2019, with GDP roughly flat in the fourth quarter. Across the EU, growth also slowed that year, mainly due to global trade tensions and a manufacturing slump, while Brexit-related uncertainty was a contributing factor rather than the primary cause. Some firms, especially in financial services, moved parts of their operations and assets from the UK to EU cities ahead of Brexit, though these were typically partial relocations. The larger, measurable effects on UK–EU trade volumes became clearer after the transition ended in 2021, when new trading arrangements took effect.Aggravating circumstances
Evergrande liquidity crisis in 2021
In August 2021, it was reported that China's second-largest property developer, Evergrande Group, was entrenched in $300 billion of debt. As the company missed several payment deadlines in September 2021, it seemed likely the company would fail without government intervention, as stocks within the company having already plummeted by 85%. Since China is the second largest economy in the world and property makes up a large amount of their GDP, it threatens to destabilise the COVID-19 recession even further, especially considering China is currently deep within a housing bubble eclipsing the United States housing bubble that led to the previous global recession.2021–2023 global energy crisis and sanctions on Russia
The 2021–2023 global energy shortage is the most recent in a series of cyclical energy shortages experienced over the last fifty years. The Russian military buildup outside Ukraine and subsequent invasion have also threatened the energy supply from Russia to Europe, while increasing the cost of oil causing European countries to diversify their source of energy import.The economic fallout from the 2021–2023 global energy crisis and the 2022 Russian invasion of Ukraine has had an impact on oil prices worldwide, most notably the unprecedented measures taken on the SWIFT System and Tit-for-Tat Responses to comprehensive sanctions from other countries. Preceding an official announcement regarding import bans on 8 March 2022, there were reports of proposed bans regarding Russian oil and gas imports by the US and the EU.
This was in addition to the already existing actions taken by American companies on multiple Russian entities with ties to the Russian government, with Russia's trading status also being called into question on security grounds. Prior to the ban having been implemented, the value of the Russian ruble had dropped by record levels as the price of oil hit a 14-year high. The talks about whether or not to implement an International Energy Embargo were already reported to have been impacting the Russian oil market due to pre-existing fears by investors by 10 March, there were reports stating that Russia's debt rating was downgraded by Fitch from "B" to "C", indicating a potential default was imminent. This ultimately came to pass after 27 June with the 2022 Russian debt default.