21st century crises compared

Author: Kevin Ceulemans

The current COVID-19 Crisis is not the first crisis we’ve had to face since the start of the 21st century. The year 2000 marked the burst of the Dotcom Bubble and later that decade, in 2008, we were confronted with the global Financial Crisis. BrightWolves compared the expected economical impact of the current COVID-19 Crisis, on Belgium, with the two earlier crises of our century.

As our world became increasingly globalized and interconnected, it also favoured the global spread of crises which is what we’re seeing today. The virus outbreak in Wuhan (China), rippled through Europe, continued its path to the Americas and is now starting to hit emerging countries.

The negative impact of the crisis on our GDP

The lockdown measures put in place in the majority of countries have (on April 1st) impacted more than 3,5 Billion citizens (50% of the world population) yet freezing more than 80% of global GDP. Looking back at the Dotcom Bubble burst, the Belgian economy was only mildly affected. GDP growth decreased from +3,7% in 2000 to +1,1% a year later. The Financial Crisis had a greater impact, the GDP decreased to -2,0% in 2009 but recovered in 2010 going back up to +2,9%. When we look at the COVID-19 Crisis, which is still in its early stages, forecasts are alarming. KBC economics are estimating to see a GDP drop of -9,5%, decreasing the Belgian GDP 5 times more compared to the 2008’s Financial Crisis.

Rapid increase of temporary unemployment

Unemployment during the Dotcom Crisis and the Financial Crisis remained quite stable and (6,6% and 7,0% respectively), both reached a peak of 8,5% in 2005 and 2015, respectively. Looking at recent numbers for the COVID-19 Crisis, we see that the total paralysis of the economic activity since the end of March has put more than 25% of the Belgian workforce under temporary unemployment. To date, it is still unclear if and when Belgium will be able to restore the numbers to its pre-COVID-19 unemployment rate of ~5,2%.

Governments and consumers response to the crisis

Extreme times call for extreme measures. Most governments embody a ‘whatever it takes’ mentality not only towards their national health situation but also to keep their economy afloat. For example, by trying to avoid a sharp drop in credit facilities for SMEs, as witnessed in both the Dotcom Crisis and the Financial Crisis. The current measures taken by the government entail among other things a drastic facilitation of the application procedure for temporary unemployment, corona nuisance allowances and bank loan guarantees.

When we look at the consumer side of this crisis, we can tell that they’re adapting as the crisis evolves. After an initial stock piling rush, consumers are now shifting towards online shopping benefiting both international players, such as Amazon, as well as local e-shops. On the long term, BrightWolves research shows trends towards more simplicity, less consumer spending and an increase of green consumerism. Looking at pricing, it remains unclear at this stage whether prices will deflate similarly as during Financial Crisis. This will depend on whether or not demand and supply will recover at the same pace.

What about the recovery?

While the short-term impact is indisputable (Belgian GDP -9,5%), the long-term impact will strongly depend on the governments’ abilities to turn the tide. A rapid V-shaped recovery, a downward spiral, a slower U-shaped, or even L-shaped recovery are possibilities. We cannot tell how fast we will recover from this crisis but we’re all in this together and BrightWolves is positive that we will recover from this!