The World is on the Verge of Ending the Biggest Recession in the History
In the meantime, it should be noted that the effects of Coronavirus were not only in the field of health, and this pandemic led to the formation of one of the largest economic recessions in the world.
According to Sina Press, official statistics show that Covid-19 caused huge damage to the world economy, and for example, following the quarantines imposed by governments, the US unemployment rate increased three times more in just one month and reached 25 percent. Almost four out of five retailers closed only in the UK.
The quarterly report of the Statistics Center of Iran in the summer of 2021 showed that the unemployment rate increased by 0.8 percent compared to the previous three months and reached an overall figure of 9.6 percent. In addition, the employment rate in Iran, especially among women, is still much low even compared to the pre-Corona pandemic. According to this report, 23 million and 404 thousand Iranians were considered employed this summer, which is 136 thousand lesser than last year, and one million and 346 thousand lesser compared to the summer of 2019.
Thus, the recession prompted governments to take action to protect consumers and companies on an unprecedented scale. In some countries, part of the workers' wages was taken care of by the government. The corona pandemic has left tens of thousands of house applicants in debt.
It should be noted that when businesses and companies are destroyed by economic crises, the economy loses its potential and capacity, which makes it more difficult to improve the economic situation. Under such circumstances, workers lose their power and even their mental health, and as a result, entrepreneurial talent and business intelligence are drastically wasted. Therefore, the special care provided to protect the economy during an epidemic to support people's lives should maximize the chances of economic recovery in a "V" or "U" shape to reduce the chances of destructive unemployment and bankruptcy in the future.
However, the political challenges for governments will go beyond rapid economic recovery. The pandemic has two long-term and potentially irreversible effects on the world economy that governments will face in the coming years.
The first is a fundamental and far-reaching change called the telecommuting revolution, which was caused by forced social distancing. In the last few decades, online work has slowly taken root in some companies and industries, but some sectors never accept this change due to customer inclinations and regulatory problems, according to Sina Press. But after the advent of Coronavirus, companies changed their entire online business within a few days, and even online retailers were welcomed in non-traditional online markets which eventually led to a great change.
Experts believe that these structural changes are unlikely to return to normal but the psychological effects of social distancing will remain. Companies have realized that employees can be more productive at home than in offices and that they no longer need to buy and rent expensive commercial establishments. The benefits of this change will be enormous and varied at the same time, and eventually, jobs will become more dynamic as no one is looking for proximity to the workplace and can work anywhere in the world.
On the other hand, this structural change quickly led to a significant downturn in areas such as real estate, retail, hotels, coffee shops, and restaurants in the city. Hundreds of thousands of displaced workers in these sectors need support for new employment. According to Sina Press, the education sector and skills development need more attention, which has a small budget. Hiring conditions for semi-skilled people should be more flexible and easier. These will greatly help the economy and improve the employment situation. Shopping malls that are left unused can also be converted into useful land use or turned into places that the community needs more.
The second and bigger challenge is the dramatic increase in government expenditure in the form of supporting packages for consumers and companies. Government budget deficits have risen to levels that have not been experienced since World War II and led to the high national debt. In other words, the amount of debt exceeds the total gross output, that is, the value of everything produced in the economy during a year.
This will change the general financial situation of the world for decades to come. If taxes are increased, it makes it very tough for the middle class. In the meantime, the fairest case is for those economic actors who have made the most profit from quarantine to pay the largest share of the taxes.
By Dr. Pouria Jahanbakhshian – Lecturer at Department of Business and Finance, Cyprus State University, and Swiss Cote Bank Advisor and Analyst in Stock Market and Forex
Translated by: Mehdi Fallahi Panah
