COVID-19 May Have Been the Tipping Point into Global Economic Instability, New Study Finds

Anahita Kodali, Medical Sciences, News, Summer 2020

Figure 1: SARS-CoV-2 (whose structure is shown above) is undoubtedly the most impactful virus in the coronavirus family currently known. Symptoms of COVID-19 include high fever, fatigue, and shortness of breath. In many cases, the disease can become more severe, causing persistent chest pain, irreparable lung damage, and even death.

Image Credit: Wikimedia Commons

The COVID-19 pandemic has brought with it not just widespread and severe disease but also questions about the future stability of the global economy. In April, the United States had an unemployment rate of 14.7%, the highest recorded level of unemployment since 1939. 1 Though unemployment levels have fallen since then (in May, it had fallen to 13.3%), a large proportion of the population is still struggling to find work. 2 To combat an impending recession, the federal government approved sending out stimulus checks of $1200 dollars. Unfortunately, there were two main problems with the stimulus. For one, millions of Americans did not receive checks or did not receive the full intended amount (for example, some married couples only received $1200 dollars when they should have gotten $2400). 3 Secondly, because the stimulus was so intense and the state of the economy is so uncertain, many people opted to save their money rather than actually spend it; thus, it did not stimulate the economy to the extent that it was intended. 4

These economic problems are not just isolated to the United States. The collective economies of countries in the Organization for Economic Co-operation and Development (OECD), of which the US also is a part, have been declining for decades. After 1970, the economic growth of OECD countries slowed dramatically, falling from 4% annually to slightly over 1% in the years leading up to 2020. Estimates suggest that the global Gross Domestic Product (GDP), a measure of production levels in the global economy, will decline by 5% this year alone. 5

Now, researchers from the University of Surrey, located in the South East of England, published findings in Natureshowing that the economies of countries including the United States, Germany, and the United Kingdom are headed for periods of instability. The team used a novel approach of applying Critical Slowing Down (CSD) theory to datasets with long-term information on global GDPs, some of which dated back to the 1820s. 6 CSD is typically applied in physics and ecological applications and shows the rate of growth and recovery slowing in systems close to some critical tipping point, the rate of growth and recovery will slow. This slowing occurs because the system’s stabilization forces are under such a great amount of pressure that they weaken. 7 When looking at the global economy, fiscal policies set in place to automatically up spending during times of recession act as the stabilization forces; eventually, however, these forces weaken and result in significantly slowed economic growth. 8  Researchers in this study found that over the past few years, many of the world’s strongest economies were experiencing much slower growth cycles than usual, suggesting that economic systems were falling into the specifications of the CSD theory. The COVID-19 pandemic may well be the tipping point that pushes the global economy into a period of extreme instability6.

Even though the immediate future of the economy is grim, Professor Tim Jackson,  an author on the paper, said that putting the economy “on hold to prevent unfathomable human tragedy from the Covid-19 pandemic was the right decision”. 5 He went on to say that even though there will be incredible challenges to overcome, CSD theory suggests that after periods of instability, there is an opportunity for a healthier and stronger stable system to be put in place.5 As countries struggle to rebuild their economies in the coming years, economists remain optimistic that the world will emerge more stable than it was before the pandemic.

 

Bibliography

[1] United States Unemployment Rate1948-2020 Data: 2021-2022 Forecast: Calendar. (n.d.).

Retrieved June 28, 2020, from https://tradingeconomics.com/united-states/unemployment-rate.

[2] The Employment Situation – June 2020. News Release. Bureau of Labor Statistics. https://www.bls.gov/news.release/pdf/empsit.pdf

[3] Long, H., & Singletary, M. (2020, April 16). Glitches prevent $1,200 stimulus checks from

reaching millions of Americans. Retrieved June 28, 2020, from

https://www.washingtonpost.com/business/2020/04/16/coronavirus-cares-stimulus-check/

[4] Jim Wang. How Are Americans Really Spending Stimulus Checks?Forbes. retrieved June 28, 2020 from https://www.forbes.com/sites/jimwang/2020/06/25/how-are-americans-spending-stimulus-checks/#14447bc1e311

[5] University of Surrey. (2020, June 26). Global economic stability could be difficult to recover in the wake of COVID-19 pandemic, finds study. ScienceDaily. Retrieved June 28, 2020 from www.sciencedaily.com/releases/2020/06/200626114759.htm

[6] Craig D. Rye, Tim Jackson. Using critical slowing down indicators to understand economic growth rate variability and secular stagnationScientific Reports, 2020; 10 (1) DOI: 10.1038/s41598-020-66996-6

[7] Critical Slowing Down. (n.d.). Retrieved June 28, 2020, from

https://systemsinnovation.io/critical-slowing-down/

[8] Heather Boushey, Ryan Nunn, and Jay Shambaugh. Recession Ready: Fiscal Policies to Stabilize the American Economy. Brookings Institute. Retrieved June 28, 2020 from  https://www.brookings.edu/multi-chapter-report/recession-ready-fiscal-policies-to-stabilize-the-american-economy/

 

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