International Crisis Deepens With Largest Economic Contraction Ever Reported

By Peter Cherry

The largest ever annualized drop in economic activity was reported by the Commerce Department in the US, showing that the economy shrank by 32.9% in the second quarter of 2020.

This report comes amid the deepening global crisis of overproduction that became clear at the start of the year and pulled first quarter economic growth down by 5%. It also follows the second week that jobless claims have spiked despite many states ‘reopening’ and seeing a temporary gain in workers employed. This demonstrates how overproduction leads to a chronic under-capacity of production in the working enterprises, and is accompanied by mass unemployment.

Commodities have been produced in large numbers but due to the fact that they have not been sold, factories are left shuttered and warehouses are locked with goods the masses of people need. The growth of workers’ wages have fallen or stagnated to the slowest rate in years.

Likewise, there has been a corresponding drop in prices. Waiting for prices to rebound, the capitalists keep factories under capacity through layoffs and stopping production in order to eventually sell commodities profitably with time. Slowly, they either destroy products that has already been created or keep them in storage until conditions change. This has hurt capitalists that own small enterprises, finding themselves declaring a record number of bankruptcies out of their inability to stay afloat.

The Eurozone economy likewise shrank by 12.1 percent in the second quarter of this year while the EU’s overall GDP contracted by 11.9 percent, according to the bloc’s statistics office Eurostat. Spain recorded the worst contraction at 18.5 percent, followed by Portugal, France, Italy, and Germany.

China did not experience sharp drops in economic activity, but their level of manufacturing has only marginally rebounded, and Asian stock markets are likely to respond negatively to the sharp drops reported in this quarter. The general crisis of imperialism is likely to result in a drop of manufacturing in these export-driven economies, and will exacerbate contradictions between oppressed countries and imperialists. The countries oppressed by imperialism will face lower export prices and thus lower economic activity.

Since the crisis started, the personal consumption of commodities by US workers, which accounts for two-thirds of all purchases made in the economy, has decreased by as much as 25%. Feeding America, the largest nonprofit network of food banks, has reported that those workers who are hungry and without food could increase from 37 million to 54 million. Nonprofit Oxfam America has likewise pointed out that the capitalist crisis could lead to as much as 12,000 people dying per day.

As the extra $600 per week unemployment aid has ended, the Democrats and Republicans are days away from going on recess and are still deadlocked over a further relief package. Both parties have used the lack of work and desperation for wages to markedly worsen the position of the working class. They want to give minor economic payoffs for the corresponding destruction of social value workers have experienced, with some representatives arguing that unemployment benefits should only be 20% of what workers incomes were before the crisis. They intend to use the crisis as an opportunity to intensify labor in the factories and warehouses, by leveraging the unemployed against those with work to decrease wages for all.