Economic recovery after Covid: scars will remain after the rebound

Reinhart says emerging market issues are foremost among rich countries

Photographer: Angel Garcia / Bloomberg

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Just as some patients recovering from Covid-19 suffer from lasting symptoms, it becomes clear that the same will be true of the global economy once this year’s V-shaped rebound wears off.

While $ 26 trillion in crisis support and the arrival of vaccines fueled a faster-than-expected recovery, the legacies of education delay, job destruction, levels of he war-era debt and widening inequalities between races, genders, generations and geographies will leave lasting scars, mostly in the poorest countries.

“It’s very easy after a grueling year or more to feel really relieved that things are back on track again,” said Vellore Arthi of the University of California at Irvine, who has examined Health and Economics. long-term past crises. “But many of the effects that we see historically often last for decades and are not easily treated.”

Great expectations

IMF predicts global economy to grow 6% this year

Source: International Monetary Fund

All in all, the decline in gross domestic product last year was the largest since the Great Depression. The International Labor Organization estimates that this costs the equivalent of 255 million full-time jobs. Researchers at the Pew Research Center estimate that the global middle class has shrunk for the first time since the 1990s.

Costs will fall unevenly. A dashboard of 31 metrics across 162 countries designed by Oxford Economics Ltd. highlighted the Philippines, Peru, Colombia and Spain as the economies most vulnerable to long-term scarring. Australia, Japan, Norway, Germany and Switzerland were seen as the best placed.

Carmen Reinhart
Photographer: Jin Lee / Bloomberg

“Returning to the pre-Covid standard will take time,” said Carmen Reinhart, chief economist at the World Bank. “The consequences of Covid are not going to be reversed for many countries. Far from there. “

Not all countries will be affected in the same way. The International Monetary Fund sees advanced economies less affected by the virus this year and beyond, low-income countries and emerging markets to suffer more – unlike 2009, when rich countries were hit hardest. With U.S. GDP set to be even higher than expected ahead of Covid-19 next year, propelled by billions of dollars in stimulus, IMF projections show few residual scars from the pandemic for the world’s No.1 economy .

The shrinking center of the developing world

An estimated 150 million people slipped up the economic ladder in 2020, the first setback in nearly three decades

Sources: The Pew Research Center extrapolated the size of the income distribution population from the 2014 and 2018 World Bank household surveys using the bank’s January 2020 growth forecast and the growth estimates of January 2021 for 2020; middle and upper-middle income defined as $ 10 to $ 20 and $ 20 to $ 50 per day, respectively.

Learn more about how the pandemic has shrunk the global middle class

The World Bank warned in a January report of “a decade of disappointments in global growth” unless corrective action is taken. He estimated that global production was on track to be 5% below its pre-pandemic trend by 2025 and that the growth rate at which inflation soars is expected to fall below 2%. over the next decade, having already fallen to 2.5% in the 2000s. from 3.3% in the previous decade.

Experts, including Arthi, believe there is no need to waste a decade if the right policy measures are taken, especially in the areas of retraining workers and grounding those hardest hit. by the crisis. One solution is to encourage policies that encourage companies to innovate and invest, especially in climate change. Central banks and most governments are already announcing that they will continue to make stimulus measures work.

Federal Reserve Economic Symposium in Jackson Hole
Catherine Mann
Photographer: David Paul Morris / Bloomberg

According to Catherine Mann, chief economist at Citigroup Inc., the right kind of policy mix could push the rebound towards a full recovery.

“Innovation supports higher productivity growth and new investments raise living standards,” she said. “Strategies to retain and train workers to take advantage of higher productivity opportunities are also essential.”

After the V

Countries that have quickly brought the virus under control are sending flares down the uneven road ahead. After initially enjoying a V-shaped recovery, New Zealand’s economy contracted in the last three months of 2020 as the absence of foreign tourists left a hole that locals couldn’t fill. Today, the country that has historically dominated Bloomberg’s Covid resilience rankings faces the prospect of a double-dip recession.

In China, where the pandemic has been under control for nearly a year, retail spending has lagged behind the general recovery.

What Bloomberg Economics Says:

“Focusing on overall GDP, with US and Chinese engines buzzing the world, is poised for a triumphant ‘V’ shaped recovery. Beneath the surface, the discrepancies between advanced and emerging markets, superstar companies and their smaller rivals, and high and low-skilled workers point to scars that will take longer to heal.

– Tom Orlik, Chief Economist

How consumer confidence and spending habits are shaped by lingering concerns about health and hiring could end up being one of the most significant economic legacies of the crisis, much like the Great Depression of the 1930s. led to greater economy. It is a risk even though many people have accumulated savings over the past year.

Key speakers at the Brussels Economic Forum
Adam Posen
Photographer: Marlene Awaad / Bloomberg

“There is real uncertainty about the extent to which people’s behavior in terms of consumption patterns is changing as a result of this crisis,” said Adam Posen, president of the Peterson Institute for International Economics. “If people go back to eating in restaurants, taking pleasure trips, working out in gyms, a lot of these industries will come back. But it is also possible that people’s tastes genuinely change, in which case there will be more unemployment during the transition and there is no good government solution for it.

History shows that five years after country-specific recessions, long-term growth forecasts were generally 1.5 percentage points lower than in countries without recessions, according to the World Bank.

Sustainable change

The crisis has accelerated the use of robots in both manufacturing and the service sector, as workers and customers need to be protected from the spread of disease. While this raises hopes for a pickup in productivity growth, millions of jobs will be threatened by a question mark as to whether enough new jobs will be created in the process.

According to McKinsey & Co., more than 100 million people in eight of the world’s largest economies may need to change occupations by 2030, according to McKinsey & Co. The least educated, women, ethnic minorities and young people are the most likely to suffer from a lack of skills.

The longer people are unemployed, the more their skills atrophy in a process known as hysteresis.

“A lot of those jobs are gone forever,” said Eric Robertsen, global head of research at Standard Chartered Plc. “Low-wage jobs in marginal companies or in marginal sectors have disappeared because companies have gone bankrupt or sectors have hollowed out. Many of the more adaptive companies will have filled the void, but with fewer workers.

High inequality

The richest 1% in Latin America receive a larger share of national income than any other region

Source: Global Inequalities Database


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