The results are out for the economic impact that Covid-19 has had on the world’s major economies in the first six months of the year… and unsurprisingly, they are showing unprecedented levels of global economic destruction.
Only China has been able to avoid a recession, recording GDP growth of 3.2% for the second quarter of the year. This is likely a result of the incredibly strict lockdown measures in the immediate aftermath of the outbreak, a decision which consequently allowed Chinese industry to bounce back quickly in April through June.
The United Kingdom on the other hand, a country which struggled to establish clear guidelines early on and whose Prime Minister was struck down by Covid-19 for most of March, is now facing the deepest recession since records began.
UK GDP fell by 22.1% in the first half of the year, and despite the governments intuitive furlough scheme over 700,000 people have lost their jobs and many businesses have gone bankrupt.
Since the spread of Covid-19 began, and businesses in the UK were forced to close and people ordered to stay at home, the service sector came to a standstill and consumer spending plummeted. Unfortunately for the UK, their economy is heavily reliant on both of these, hence why the economic impact had been so devastating compared to more diversified economies.
Whilst GDP in the UK did bounce back in June, the major concern will be the continuing threat of a resurgence of Covid-19. The government needs to act quickly to create jobs and encourage spending in the economy, and then with a little bit of luck they may be able to avoid an even deeper and far-reaching economic crisis.
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term recession?
Q2. Explain one reason why GDP has fallen so sharply in the UK.
Q3. Explain the relationship between consumer spending and economic growth.
Q4. Evaluate the view that expansionary fiscal policy is the only way for the UK government to solve this economic crisis.
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