The COVID-19 pandemic continues to wreak havoc around the world, and apart from the devastating toll the virus is taking on human life, it is increasingly clear that the economic ramifications of its spread are equally far-reaching. Indeed, it is common to see headlines covering everything from record-setting unemployment rates to indicators of deep recession, with a possible lasting impact for years to come. When faced with this reality, it is important to take a step back and understand what economists mean when they inform us that the UK is headed towards a period of recession, as well as the potential implications this has for ordinary citizens.
To understand recession, it is important to know what is meant by an "economy". In its most general form, this refers to the production, distribution, consumption and trade of goods by individuals in a given region. The individuals we refer to in this scenario cover everyone, from ordinary consumers to large corporations. The economic fabric of a country such as the UK governs everything from how much everyday food costs at the supermarket, to how many goods are produced (and consumed) at the largest firms. For this reason, it is important to understand how the economy of a country such as the UK is performing, and yet, measuring such a complicated interaction of agents is difficult to do precisely. In reality, multiple statistics can represent the overall health of an economy.
One of the most common measures of an economy's health is its gross domestic product (GDP), which is the total value of goods and services that an economy produces in a given year. Though this is a coarse measure of economic health, in general GDP growth indicates overall economic benefits to a country's population.
On the other hand, sustained periods in which the GDP of a country does not increase as intended, or even worse, when the GDP of a country contracts, lead to an economic recession. Typically, if such a contraction persists over the course of 6 months, we say an economy is in recession, and if even longer, we say that economy is in depression. Converse to the case of economic growth, recession can lead to jobs lost, wages decreased, and less of a government budget to spend on public goods for the benefit of everyday citizens.
COVID-19 has pushed almost all major economies around the world into recession over the past months. In the past 3 months alone, the UK GDP has contracted by 19.1%. The International monetary Fund (IMF) predicts that US GDP will contract by 5.9% and that the UK GDP will contract by 6.5% by the end of 2020. In fact, the IMF predicts that globally, GDP will contract by 3% over the course of 2020, making this year a period of recession unseen since the great depression of the 1930s.
Such an economic contraction has wide-reaching implications for the fabric of life of individuals around the world, but there is some hope. China's economy has grown by 3.2% in the second quarter of 2020, which leads economists to think that there may be potential for "v-shaped" recuperation to economic losses, though much remains to be seen in this period of incredible uncertainty.