The 2008 financial crisis shocked the entire world, severely damaging many economies and showcasing the importance of both domestic and international markets in societal well-being. Considering its relatively recent occurrence, the global financial crisis was believed to become a milestone and a reference for adopting measures to prevent economic breakdowns in the future. However, with the spread of coronavirus affecting every continent, experts have realized that the threat lies not only in well-established policies and regulations but also in healthcare and social trends. Many economists believe that the COVID-19 pandemic will result in more damaging economic outcomes than the 2008 crisis, as it touches and weakens every industry (Fernandes, 2020). Once again, economic forecasts were unable to predict such a significant and global financial hit. Despite many tools that are being continuously developed and introduced, the two crises showed that the analysis and prediction methods should be revised to include more spheres of the economy than only the financial. On the other hand, businesses and organizations, by responding to contemporary vulnerabilities, become stable and ready for unprecedented catastrophes.
Although effort and work are made in the field of financial forecasting to minimize risks and vulnerabilities, it is still not possible to confidently predict the next crisis. The analysis approach has moved from individual firms to a macro level, attempting to evaluate the risks of financial systems as a whole (Dastkhan, 2019). Despite its effectiveness in measuring vulnerability, there are several difficulties and obstacles associated with systemic risk analysis (Dastkhan, 2019). Some of these issues include the unavailability of information about interactions between different firms and the low frequency of calculating vulnerabilities (Dastkhan, 2019). Therefore, Dastkhan (2019) believes that close attention should be paid to forward-looking and flexible market-based analysis tools, such as CoVaR, which proved its “good capability to issue the true warning signals” (p. 16). However, even the most advanced methods might present data with some delays or fail to predict anything at all (Dastkhan, 2019). This finding provides policymakers and experts with a particular level of confidence, which should be used to adopt risk preventative measures and minimize a potential crisis.
Both the 2008 crisis and the COVID-19 pandemic have shown global financial and economic vulnerabilities and their not readiness to tackle rising problems. Although the two led to high unemployment, reduced global economic growth, and damaged the well-being of individual countries, the coronavirus epidemic is a unique case that cannot be compared to previously experienced crises (Fernandes, 2020). Massive outcomes of the pandemic were already seen in the early spring of this year with the “destruction of demand and supply”, millions of jobs lost, international travel restrictions, and many more (Fernandes, 2020, p. 5). According to Fernandes (2020), every industry from Media and Banks to Oil and Travel was damaged with a minimum decrease in the stock market of thirty-two percent (p. 16). Moreover, in March 2020, economic volatility was higher than during the 2008 crisis, which depicts the significance of the issue (Fernandes, 2020, p. 17). As a result, global economic activity slowed down, which can lead to a long-lasting recovery stage.
By the beginning of May, many countries began to adopt policies to restart their economies. However, these changes are unlikely to meet the previous growth forecasts. For instance, Fernandes (2020) predicted that the GDP of countries around the world would decrease by an average of about six percent due to a three-month-long quarantine (p. 25). Despite such unpromising predictions, there are several benefits that the COVID-19 pandemic brought to businesses and governments. Lockdowns pushed companies to adopt changes and adapt to the contemporary situation, which helped boost the state of distance working and company communication. Therefore, companies and governments now have experience in tackling such issues and operating distantly.
In addition, some findings show that there is an opportunity for small businesses despite the disadvantageous economic environment during the COVID-19 crisis. According to Li and Li (2020), numerous lockdowns can damage monopolies and, thus, provide other companies with new customers and create competition. Moreover, some platforms that work with product delivery gained benefits and became popular, which can change future consumer shopping behavior (Li & Li, 2020). It is argued that the social distancing policies will prevent some customers from visiting highly dense places, like common supermarkets, and encourage digital trade and purchases (Li & Li, 2020). Still, some regulation needs to be introduced to prevent the rise of prices while promoting economic activity.
The 2008 global crisis and the COVID-19 pandemic severely damaged the global financial and economic networks. Forecasters failed to predict the two crises despite the advanced tools and methods. However, the coronavirus epidemic showed that threats lie not only in the policies but also in external environments, such as healthcare and social well-being. Therefore, new tools should be introduced to reflect the modern interconnected, globalized economy. Experts believe that the COVID-19 crisis will affect the world worse than the 2008 financial crisis. However, the pandemic has also forced businesses and governments to adapt to the changes, which can help them minimize such vulnerability in the future.
References
Dastkhan, H. (2019). Network‐based early warning system to predict the financial crisis. International Journal of Finance & Economics, 1-23.
Fernandes, N. (2020). Economic effects of coronavirus outbreak (COVID-19) on the world economy. IESE Business School, 1-29.
Li, K. J., & Li, X. (2020). COVID-19 pandemic: Social distancing, public policy, and market response. Web.