The economic meltdown brought on by the coronavirus has world governments deploying numerous spending packages to keep their citizens and economy afloat. The spending is a necessity to stimulate the economy, but the debt could result in a doubled down recession for some countries.
Earlier this week, the International Monetary Fund (IMF) said the world economy would shrink at its fastest pace in decades, raising fears it will be the worst recession since the 1930s Great Depression. The International Monetary Fund projects that the global economy this year will "very likely" suffer the worst financial crisis since the Great Depression, as governments around the world extend lockdowns and economic shutdowns to fight the spread of COVID-19. The Washington-based fund now expects the global economy to contract by 3% in 2020.
"Debt crises may be coming," the Economist Intelligence Unit (EIU) wrote in late March. "For now, governments are ramping up fiscal spending to fight the epidemic, maintain the basic economic architecture and keep workers in their jobs. As a result, fiscal deficits will rise sharply in the coming years."
The United States as a whole is behind in spending on unemployment benefits and labor markets compared to other countries. European labor markets tend to be more organized than American markets.
Consumer demand is unlikely to bounce back to pre-crisis levels immediately when social distancing is lifted and businesses are allowed to reopen.
At the same time, the EIU says global supply chains may still be disrupted as countries lift restrictions at different times, creating bottlenecks.
"We will avoid a massive debt default cycle, but in the short term we might get some worse news," said Steve Brice, chief investment strategist at Standard Chartered Private Bank, "Clearly we'll need some more funding. And that seems to be less easy today than it was two, three weeks ago," he added.