The World Economy Plummets: Major Clashes are Looming

“It is now clear that we have entered a recession – as bad as or worse than in 2009,” said Kristalina Georgieva, managing director of the International Monetary Fund (IMF), in late March [1]. Actually, the announcement only confirmed an ongoing trend long before the pandemic but is now undeniable.
By Daniel Sugasti
On April 14, a report by the same body predicted a 3% drop in world GDP in 2020, the worst since 1929, as a result of what they call the economic great lockdown caused by more or less stringent quarantines enacted by governments to contain or slow the contagious escalation of the new coronavirus.
In fact, the forecasts underwent a U-turn in less than three months. In late 2019, the IMF estimated global growth was 3.4%. Thus, the current change means a negative difference of more than six points. An unprecedented fact in recent history, “much worse than during the 2008–09 financial crisis,” according to the World Economic Outlook report. By the way, the IMF compares the effects of the pandemic with the consequences of war, but on a global scale. According to its reckoning, the world output will lose US$ 9 trillion between 2020 and 2021. The picture is really grim.
The United States, the hegemonic imperialism, would suffer a 5.6% reduction in its GDP. The situation there is critical. Not only is it the epicenter of the pandemic, but the effects of the recession are knocking on the door: More than 22 million Americans have applied for unemployment insurance in the last month. 73% assure that their income fell in the last months. Trump’s own re-election, which seemed likely due to certain economic indicators, is now in jeopardy.
China will grow by only 1.2%, a figure so small for the Chinese standards that in practice it would amount to a recession. The advanced economies, always according to the IMF, would fall to -6.1% from 1.7% in 2019. The Eurozone would fall to -7.5% from 1.2% but, out of that, Italy and the Spanish State would plummet to -9.1% and -8%, respectively. The Greek economy, meanwhile, would contract by -10%.
Latin America would contract by -5.2% from 0.1%. If we focus on its two main economies, Brazil would fall to -5.3% and Mexico would suffer a melt of 6.6% of its GDP. Both countries, according to “optimistic” estimates, would recover the economic crisis accentuated by COVID-19 loss only in 2023.
There is more: world trade would fall 11% and industrial production would collapse 10.2% in 2020 [2].

Obviously, it is not possible to assure that this gloomy scenario will materialize. First, because the IMF and other imperialist organizations are used to forecast wrongly to favor speculation. However, keeping this in mind, it must be understood that the current situation is different. It is a fact that the world economy is collapsing. This is a difficult truth to question at this point. In other words, the recession predicted by imperialism economists may not only have that “catastrophic” dimension, but it may be even worse. In other words, these forecasts are not likely to improve but to worsen.
Starting from this premise, among the most important questions are how and when the recovery will take place. The IMF, World Bank, IDB, and other institutions expect a quick recovery in 2021. They predict a V-shaped recovery, i.e. one that start with a steep fall, but trough and recover quickly. The IMF, for example, predicts uncertain global GDP growth of 5.8% next year because it depends critically on the pandemic fading in the second half of 2020 and on economic policy actions, their well-known “guidelines.” Other institutions point in the same direction.
So far, two initial conclusions: 1) the world economy will enter a brutal recession, even opening up the possibility of an L-shaped recovery, that is, a sharp decline and a long period of depression; 2) once the pandemic is contained – that the international bourgeoisie assumes it will be relatively fast – the burden of the crisis, whatever its size, will fall – as it already happens – on the shoulders of the working class.
It is important to highlight that the new coronavirus is only the trigger for the future recession. The pandemic struck a global economy that had been showing signs of weakness; it attacked an organism with pre-existing ailments: the evils and contradictions of capitalism itself. The real curse is not the COVID-19 but the bourgeois system of production and social organization. It is this system that is leading us, once again, to a more or less prolonged recession period – perhaps a depression – that will make 2008 seem like a joke in bad taste.
The fact that the US, the most powerful nation in the world, is the epicenter of the pandemic naked capitalism’s ability to guarantee the survival of humanity against such big crises. European imperialist countries are not far behind: in a few weeks, their health systems were completely overcrowded by the advance of COVID-19. The commodification of health is taking a heavy toll on lives, mainly among the most vulnerable sectors of the working class.
The case of the United States is perhaps the one that best illustrates the latter: without having a proper public health system, the disease felt on blacks, Latinos, and casual workers, in short, on millions of people who cannot afford private health insurance. In New York alone, 62% of the dead are black or Latino [3].
Most of the health insurances are granted by companies to their employees. So if one loses his job, he will almost certainly lose his health coverage as well. Thus, the millions of recently unemployed put even more pressure on a health system that is itself in intensive care. Not to mention more than 10 million undocumented immigrants and other sectors that are completely on the fringes of the US economy and society. Mass graves on Hart Island, New York City’s Bronx district, reveal the cruel face of the “most developed and democratic” capitalism in the world. The American dream is over.

But the way the pandemic strikes rich countries cannot make us lose sight of the fact that the most affected are poor countries. Both due to the health crisis and its counterpart, the economic recession.
The crisis in Latin America
In the Latin American case, we can contrast the IMF’s forecasts with those of other organizations. GDP in the Latin America and Caribbean region, excluding Venezuela, is expected to shrink 4.6% in 2020, according to the World Bank, the largest drop since there are records. The figure exceeds the projections of the Inter-American Development Bank (IDB), which estimates a drop of between 1.8% and 5.5%. If confirmed, these numbers would leave behind the 2.5% contraction in 1983 – associated with the Latin American foreign debt crisis and triggering what would later be called the “lost decade.” The same can be said of the contraction experienced in 2009, when the Latin American economy fell “only” 1.9% [4] .
Eric Parrado, IDB chief economist, stated that: “the region will suffer economic shock of historical proportions.” Depending on the economic impact suffered by the US and China (the major trading partners of Latin American countries), the scenarios foreseen for the period 2020-2022 are of losses between 5.5% and 14.4% [5]. Added to the acceleration of the economic crisis caused by the pandemic there is an informal labor market of around 60%, the fall in the prices of raw materials, and the capital flight throughout Latin America. Between February and March alone, approximately US$ 53 billion escaped from those countries, more than double the capital flight from those markets that immediately followed the 2008 crisis, when the flight reached US$ 26.7 billion [6]. Brazil, the major Latin American economy, is not only the epicenter of the pandemic in the region but also of capital flight: more than US$ 12 billion in two months [7]. If the 37% drop in commodity prices is added to capital flight since the beginning of the crisis, the situation worsens [8]. According to a UN report, the so-called developing countries (excluding China) will lose nearly US$ 800 billion in terms of export revenue in 2020 [9]. According to the same entity, they will need more than US$ 2.5 trillion to recover from the disaster. The agency’s recommendations focus on using state resources – not the market, of course – to bail out companies and increase the share of the well-known compensatory measures, called “transfer programs.”
Social crisis and class struggle
The economic recession is showing dire social consequences. The precariousness of working conditions and unemployment are growing worldwide, a drama that goes hand in hand with increasing misery and hunger. In some countries, the combination of COVID-19 and recession will create full-blown humanitarian crises.
The effect on employment will be “devastating”, according to the International Labor Organization (ILO). At the start of the health crisis, this agency estimated the destruction of 25 million jobs worldwide, more than during the 2008 economic crisis. But a recent report predicts that “195 million jobs will be lost in just 3 months” in this year’s second quarter. Considering both the layoffs and the reduction in hours worked, the agency estimates that Latin America and the Caribbean region will lose no less than 14 million jobs, while Central America will see 3 million jobs destroyed [10]. The landmark stopped being 2008 or even 1929. ILO technicians point out that this is “the most severe crisis since World War II: job losses are growing rapidly worldwide” [11]. In the US alone, 37 million jobs could be lost [12]. According to Oxfam, the economic consequences of the coronavirus pandemic could drag an additional 500 million people into poverty. In short, between 6% and 8% of the world population could plunge into poor status, especially in the so-called developing countries.
These estimates are based on pre-pandemic data. Only one in four jobless workers in the world has access to unemployment benefits. Two billion people work in the informal sector, without access to sick leave, especially in developing countries, where more than 60% of jobs are informal, compared to 18% in rich countries. There are countries with such precarious working conditions, such as Bolivia or India, where informality reaches 80 and 90%, respectively.
In this way, the impact of COVID-19 will be harder in poor countries than in rich countries. An initial explanation for this is the health funding: while an imperialist country like Germany allocates US$ 5,986 per capita/year, countries like Haiti allocate US$ 37 per capita/year [13] in the health system.
In poor countries, those who will suffer the most will be the most exploited and oppressed sectors of the working class in the least developed regions. Women, for example, who are in the front line in the fight against the new coronavirus, are more likely to be the most economically affected. They constitute 70% of the global workforce in the health sector. In addition, they assume 75% of unpaid care work, which includes caring for children, the sick and the elderly. In turn, women are more likely to have precarious and low-paid jobs, which in turn are the most threatened by the crisis [14]. Not to mention the increase in male violence in the midst of confinement measures. The same can be said about blacks, indigenous people, immigrants, etc.
The main unknown in the current scenario and the gloomy forecasts of the world economy is class struggle response. It is known that economic crises are not necessarily equal to social outbursts or revolutions. There is no mechanical relationship. Furthermore, unemployment, disaggregation or demoralization of broad sectors of the working class and its allies could create conditions for an “ebb tide”, that is, a scenario opposed to the explosion of revolutionary processes. Nothing can be ruled out at this point nor is there a prescription for each country. The class struggle is dynamic and will have the last word.
But, if we rely on the protests (such as “banging pots and pans” against several governments) and the strikes in sectors that are still active, it is possible to point out a perspective of militant response to the effects of the crisis and the attacks that will come or that are already underway. There are no serious reasons to rule out that critical processes of the class struggle prior to the pandemic – Chile, Ecuador, Hong Kong, France, Algeria, Lebanon, Iraq, etc. – could be resumed with renewed force when conditions allow [15]. What’s more, other countries could be added that are being severely hit by both the pandemic and the neglect of governments, such as Italy, the Spanish State, or the United States itself. Why not?
In this context, the revolutionaries must be prepared for great confrontations. We have to prepare theoretically, programmatically, politically and organizationally for decisive tests.
The burning question is which program is the most adequate to intervene in the protests and revolutions that will follow the pandemic. For us, it can only be a working-class, revolutionary and socialist program. An anti-capitalist program that, under the burden of the double health and economic crisis, can be better understood by broad sectors of activists and even by the popular masses, which can not only serve as a defensive weapon against present and future attacks but also as a guide to an offensive against the handful of riches that lead the world towards barbarism.
There is no middle ground: or them or us. At the same time we fight the spread of the new coronavirus, we have to fight another virus that is the capitalist class. More than ever we must explain, as many times as necessary, that only socialism can prevent the international bourgeoisie from imposing barbarism on the planet.
In short: we must fight back the attacks of the bourgeoisie and their governments, but that will not be enough. Without a strategic goal, we may even win a few battles, but we will continue to be disoriented in this social war. This strategic goal cannot be other than to face every struggle, however small it may be, expecting that the working class will defeat the bourgeoisie, seize power and build a new type of state – a proletarian state with workers’ democracy – and undertake the transition to socialism.
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