First, let us know, what is the Recession? 

A recession is when the economy becomes less active. People lose their jobs so unemployment increases. Inflation and interest rates go down. Prices of goods go down. Many companies shares to lose value. 

Another definition is when in a row two-quarters gross domestic product goes down is when the start of a recession is marked. 

So, now the question is, Is 2020 a year of recession? There can’t be a single factor for the recession, so if there will be a recession in 2020 multiple reasons are leading to recession. Via this blog, we will look at all the factors that might be responsible for a recession this year. We will look mainly at the US and the market behaviour of the US as the global recession starts from the US and then propagates to the entire world. 

The impact of Corona virus on the global economy

Let’s clear the 1st thing this Virus is not dangerous, yes you hear it right, this virus is not dangerous, according to the WHO the mortality rate of this virus is 3-4%. So, the issue is not a virus the main issue is the measures taken by the world to control the pandemic. The majority of the countries are locked down completely. The whole world has sealed its borders as no one can come or go anywhere in the world. This is affecting global trade. The businesses are completely shut down the hardest hit among them is the aviation industry;

  • The airlines are closed
  • Hotels are closed and thus the revenue 
  • Restaurants and associate businesses are completely shut. 

Each of these businesses has a direct or indirect impact on the economy. Now if only travel and tourism are shut for months here this will impact other big businesses too, for example, as of now IPL (Indian Premium League) which is the biggest cricketing event of India attracting many foreign cricket lovers seems to not happening this year. Imagine the loss of both the revenue and the employment it will cost. 

So, this is quite clear that the impact of Corona virus is going to be huge on the global economy.

The prices of crude oil crashed 

The US is now a major exporter of crude oil globally. But for the US shale oil to make any money the crude oil prices should be above $45 a barrel. If not all the shale oil companies start making losses. If they start making losses consistently then that will create bankruptcy in most of the oil companies leading to a knock-on impact on the US economy.

Although the lower crude oil prices are blessings in disguise for the Indian economy as the lower crude oil prices in India saves, a lot of oil import bill but one must not ignore the global impact around it, as this will nullify the Indian advantage.

10-year treasury yield at a historic low in the US. 

For the first time, the US 10 year yield has gone below 1%. If the yield is high people take more risks and invest in the economy. In case the 10-year yield is fewer people look for safe investment options as Government bonds and look for guaranteed returns. 

The interest rates are at the lowest 0%

The interest rate shows directly about the growth f economy. When the economy performs well means people are earning more and thus spending more which causes inflation. To keep the rate of inflation in check interest rates are kept near the rate of inflation. 

And in the US the interest rates were 2.5% last year which the Fed cut to 1.75% in Feb 2020. After that, the FED did two emergency deductions and brought down the rate of interest at 0%. This means that the US fed is anticipating a very low GDP and thus they are pumping in money to keep the economy afloat. 

The unemployment in the US is at the historic low 

Since the lockdown as many businesses in the US is, facing a complete shutdown and thus loses. The people there are also losing jobs. In our country, too we might see unemployment rate shooting off when the Coronavirus related impacts start showing in the economy.

The stock market of the entire world is crashing down

As the pandemic graph got up, the stock market came down crashing. As of 7th April, the market went down to 27% from its peak. 

What should an investor do at this time?

Here I want you to remember one thing, the world has faced a lot in the past and come out of hard times strongly. So, this too shall pass, what is the most important right now is to you and your family to be safe and healthy.

Don’t just invest because the prices are low, remember in 2008 the Nifty fell by as much as 60% before it settled down when the great global recession happened. So invest your money in the SIP manner. Also, remember “Fortunes are made in the time of recession”. Keep your SIP’s on and if you don’t have SIP start one now. 

Now, let’s answer, will 2020 be a year of recession?

The impact of Corona virus is not known to any so the impact of it is also not predicted until now. But as you know the above-given reasons are true which says we are going to face some hard time in the future. 

The global lock down is going to impact the economy very much. But, in any case, our efforts as a human right now is to be safe and keep the human race safe. 

Happy Investing

Mutual Fund is subject to market risk, please read offer related document carefully before investing.