Global Effects of Corona Crisis Featured

Written by  Apr 22, 2020

The risk of an unforeseen recession is real and it has no connection with the market sentiment. The ability of some countries to absorb economic shocks is quite less due to their slackened growth rate.

This in turn, makes them even more vulnerable financially. One of the most relevant recession scenarios is reflected by the shock-hit economy of the US during the period of vulnerability.

Recessions Can Be Categorized As Under Three Heads:

Real Recession: You may have observed a bust out of the CapEx boom cycle, which derails the expansion. The real economy of a nation may even start contracting once it experiences specific disruptions like disasters and wars that yield severe shocks in terms of supply and demand. The host of COVID-19 may be infected at that point.

Policy Recession: The central banks are known to restrict the economy by tightening credit intermediation and financial situations when they draw high policy rates in relation to the neutral economy rate of the nation. Pledging of financial assistance is not uncommon with the G7 finance ministers beyond the monetary policy response.

Financial crisis: Financial imbalances can accumulate over extended periods at a very slow pace. However, they would unwind very quickly and hamper the nation’s financial coordination before hampering the entire economy. Pointing out the risks borne by financial crises is quite tough within a critical economy although they may project some differences at the global level. The tight spreads and significant issuance help the commentators in pointing out the corporate credit bubble.

It might be tough for you to relate imbalanced financial situations with COVID-19. However the medium to small scale enterprises may experience their actual cash flow issues out of stress.

The classification of real economy owes much to our financial history and taxonomy. Compared to any financial crisis or recessions induced by the policymakers, the nature of real recessions seems to be more benign although they seem so idiosyncratic. The real recessions cause supply or demand shocks that are quite transient and yet potentially severe.

One of the largest errors committed while formulating policies has been the primary cause behind the Great Depression. All major issues concerning economic structure would reflect the pernicious nature of the real financial crises. In fact, such crises will demand a much longer correction time than the smaller depressions. That is why our nation needs to follow a sound economic strategy to overcome the challenges in quick succession.

 

Last modified on Wednesday, 29 April 2020 20:03

 

 

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