LONDON • The world is almost certainly ensnared in a devastating recession delivered by the coronavirus pandemic.
Now, fears are growing that the downturn could be far more punishing and long lasting than initially feared - potentially enduring into next year, and even beyond - as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth.
The pandemic is above all a public health emergency. So long as human interaction remains dangerous, business cannot responsibly return to normal. And what was normal before may not be any more. People may be less inclined to jam into crowded restaurants, concert halls and other venues even after the virus is contained.
The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.
Stock markets have reflected the economic alarm. The S&P 500 in the United States fell more than 4 per cent on Wednesday as investors prepare for worse conditions ahead. That followed a brutal March, during which a whipsawing S&P 500 fell 12.5 per cent, in its worst month since October 2008.
"I feel like the 2008 financial crisis was just a dry run for this," said Harvard economist Kenneth Rogoff, co-author of a history of financial crises, This Time Is Different: Eight Centuries Of Financial Folly.
"This is already shaping up as the deepest dive on record for the global economy for over 100 years," Professor Rogoff said. "Everything depends on how long it lasts, but if this goes on for a long time, it's certainly going to be the mother of all financial crises."
The situation looks especially dire in developing countries, which have seen investments rush for the exits, sending currencies plunging, forcing people to pay more for imported food and fuel and threatening governments with insolvency - all of this while the pandemic itself threatens to overwhelm inadequate healthcare systems.
Among investors, a hopeful scenario holds currency: The recession will be painful but short-lived, giving way to a robust recovery later this year. The global economy is in a temporary deep freeze, the logic goes. Once the virus is contained, enabling people to return to offices and shopping malls, life will snap back to normal. Jets will fill with families going on merely deferred vacations. Factories will resume, fulfilling saved up orders.
But even after the virus is tamed - and no one really knows when that will be - the world that emerges is likely to be choked with trouble, challenging the recovery. Mass joblessness exacts societal costs. Widespread bankruptcy could leave industry much weaker, depleted of investment and innovation.
Households may remain agitated and risk averse, making them prone to thrift. Some social distancing measures could remain indefinitely. Consumer spending amounts to roughly two-thirds of economic activity worldwide. If anxiety endures and people are reluctant to spend, expansion will be limited - especially as continued vigilance against the coronavirus may be required for years.
FROM BAD TO WORSE
The longer this goes on, the more likely it is that there will be destruction of productive capacity... Then, the nature of the crisis morphs from temporary to something a bit more lasting.
MS MARIE OWENS THOMSEN, global chief economist at Indosuez Wealth Management in Geneva.
"The psychology won't just bounce back," said Mr Charles Dumas, chief economist at TS Lombard, an investment research firm in London. "People have had a real shock. The recovery will be slow, and certain behaviour patterns are going to change, if not forever at least for a long while."
Rising stock prices in the US have in recent years propelled spending. Millions of people are now filing claims for unemployment benefits, while wealthier households are absorbing the reality of substantially diminished retirement savings.
Americans boosted their rates of savings in the years after the Great Depression. Fear and tarnished credit limited reliance on borrowing. That could happen again.
"The loss of income on the labour front is tremendous," Mr Dumas said. "The loss of value in the wealth effect is also very strong."
The sense of alarm is enhanced by the fact that every inhabited part of the globe is now in trouble.
The US, the world's largest economy, is almost certainly in a recession. So is Europe. So probably are significant economies such as Canada, Japan, South Korea, Singapore, Brazil, Argentina and Mexico. China, the world's second-largest economy, is expected to grow by only 2 per cent this year, according to TS Lombard, the research firm.
For years, a segment of the economic orthodoxy advanced the notion that globalisation came with a built-in insurance policy against collective disaster. So long as some part of the world economy was growing, that supposedly moderated the effect of a downturn in any one country.
The global recession that followed the financial crisis of 2008 beggared that thesis. The current downturn presents an even more extreme event - a worldwide emergency that has left no safe haven.
When the pandemic emerged, initially in central China, it was viewed as a substantial threat to that economy. Even as China closed itself off, conventional wisdom held that, at worst, large international firms such as Apple and General Motors would suffer lost sales to Chinese consumers, while manufacturers elsewhere would struggle to secure parts made in Chinese factories.
But then the virus spread to Italy and eventually across Europe, threatening factories on the continent. Then came government policies that essentially locked down modern life, while the virus spread to the US.
"Now, anywhere you look in the global economy, we are seeing a hit to domestic demand on top of those supply chain impacts," said Oxford Economics' managing director of macro and investor services Innes McFee. "It's incredibly worrying."
Oxford Economics estimates that the global economy will contract marginally this year, before improving by June. But this is likely to be revised down sharply.
Trillions of dollars in credit and loan guarantees dispensed by central banks and governments in the US and Europe have perhaps cushioned the most developed economies. That may prevent large numbers of businesses from failing, say economists, while ensuring that workers who lose jobs will be able to stay current on their bills.
"I am attached to the notion that this is a temporary crisis," said Ms Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva. "You hit the pause button, and then you hit the start button, and the machine starts running again."
But that depends on the rescue packages proving effective, which is no sure thing. In the typical economic shock, government spends money to try to encourage people to go out and spend. In this crisis, the authorities are demanding that people stay inside to limit the virus.
"The longer this goes on, the more likely it is that there will be destruction of productive capacity," Ms Owens Thomsen said. "Then, the nature of the crisis morphs from temporary to something a bit more lasting."
Worldwide, foreign direct investment is on track to decline by 40 per cent this year, according to the United Nations Conference on Trade and Development.
This threatens "lasting damage to global production networks and supply chains", said the body's director of investment and enterprise, Mr James Zhan.
"It will likely take two to three years for most economies to return to their pre-pandemic levels of output," IHS Markit said in a recent research note.
In developing countries, the consequences are already severe. Not only is capital fleeing, but a plunge in commodity prices - especially oil - is assailing many countries, including Mexico, Chile and Nigeria.
In the most optimistic view, the fix is already under way. China has effectively contained the virus and is beginning to get back to work, though gradually. If Chinese factories spring back to life, that will ripple out across the globe, generating demand for computer chips made in Taiwan, copper mined in Zambia and soya beans grown in Argentina.
But China's industry is not immune to global reality. Chinese consumers are an increasingly powerful force, yet cannot spur a full recovery. If Americans are still contending with the pandemic, if South Africa cannot borrow on world markets and if Europe is in recession, that will limit the appetite for Chinese wares.
"If Chinese manufacturing comes back, who exactly are they selling to?" asked Prof Rogoff. "How can global growth not take a long-term hit?"