Many investors and financial advisors remember the 2008-2009 recession with some degree of horror, as a time we’re not eager to repeat. Is it possible that our current situation is worse?
The site GZERO recently offered up a comparison:
COVID-19 Pandemic vs. 2009 Recession, By the Numbers
Using data from the International Monetary Fund and World Bank regarding the Great Recession, the GZERO team calculated the difference between the decline in gross domestic product (GDP) in 2009 versus the GDP growth in 2010 for 13 countries. Then they compared the difference — the “spread” between decline and recovery — with the projected economic declines in 2020 versus the projected recoveries in 2021.
These numbers are, we should repeat, projections, but they are based on the historically unprecedented decline in worker productivity and unemployment insurance applications due to the COVID-19 pandemic, and on country-by-country expectations of recovery once people finally get back to work.
What did they find? The US GDP declined 2.5% in 2009, which represents a steep recession and a great deal of economic hardship. According to the research, the projected decline in 2020 could more than double that figure: 5.9%. The same pattern, with some differences in magnitude, holds true for other countries. Brazil, for example, experienced a relatively mild 0.1% GDP decline in 2009, compared with a projected 5.3% downturn this year. Canada’s GDP fell 2.9% in 2009; the projected decline this year is 6.2%.
The Good News: The 2021 Recovery Will Be Much Faster Than What We Saw in 2010
The spread between decline and recovery is also generally greater across most of the countries in the study. The exceptions are interesting: Russia’s economy declined 7.8% in 2009, versus a projected 5.5% decline in 2020. It mustered a strong 4.5% recovery in 2010, but the International Monetary Fund projects just a 3.5% GDP gain in 2021. China is also an outlier. If you can believe its numbers, China experienced 9.4% GDP growth in 2009 while everybody else was tumbling into recession, and (with the same caveat) China’s GDP growth rose to 10.6% a year later. This time around, the projected numbers are a gain of just 1.2% this year, followed by a strong 9.2% growth rate in 2021.
The point here is that the COVID-19 pandemic, as expected, will take a toll on the global and US economies. We will likely feel the effects of the downturn for the next few quarters. But when shutdowns lift and more Americans can get back to work, there is no reason not to believe that our economy will pick up again and bounce back to the strong position we were in earlier this year.
In the meantime, your best defense against uncertainty is to stay focused on the factors you can control: your diversified, long-term investment strategy and the goals for which you are investing. If you have any questions or concerns about your financial wellness during this time, please feel free to reach out to our team at Empyrion Wealth Management.
Stay Safe, Stay Hopeful!
