Skip to main content

What Experts Say Will Stymie Economic Recovery

The global economy is in the middle of an unprecedented rollercoaster ride caused by economic fallout from the Covid-19 pandemic that’s about to improve before talking a turn for the worse, according to a pair of economic reports released Wednesday.

After an historic collapse in the first half of the year, economic output recovered swiftly following the easing of containment measures and the initial re-opening of businesses, but the pace of recovery has lost some momentum more recently, a report from the Organization for Economic Cooperation & Development (OECD) said. New restrictions being imposed in some countries to tackle the resurgence of the virus are likely to have slowed growth, the report said.

IHS Markit noted in its “Global Economic Flash” briefing that the second-quarter real gross domestic product (GDP) drop in most of the world’s economies was one of the worst on record, while the third-quarter rebound is likely to be unusually strong. After that, IHS Markit expects recoveries in most of the world’s largest economies to falter.

“One of the most troubling and challenging aspects of the current recovery is its glaringly unequal and inequitable allocation of pain across demographic and income groups, industries and economies,” said Nariman Behravesh, chief economist, and Sara Johnson, executive director of global economics at IHS Markit. “Although the unbalanced allotment of recession and crisis costs–sometimes called a K-shaped cycle–is not an unusual feature of recoveries, the difference in the prospects of the ‘have nots’, the ‘haves’, and the ‘have much more’ is especially stark in the post-Covid-19 world.”

Related Stories

OECD’s “Interim Economic Outlook” said with the Covid-19 pandemic continuing to threaten jobs, businesses, and the health and well-being of millions of people amid exceptional uncertainty, building confidence will be crucial to ensure that economies recover and adapt.

The strength of the recovery also varies markedly between countries and between business sectors. Prospects for an inclusive, resilient and sustainable economic growth will depend on a range of factors, OECD said, including the likelihood of new outbreaks of the virus, how well individuals observe health measures and restrictions, consumer and business confidence, and the extent to which government support to maintain jobs and help businesses succeeds in boosting demand.

The Interim Economic Outlook projects global GDP to fall 4.5 percent this year, before growing 5 percent in 2021. The forecasts are less negative than those in OECD’s June Economic Outlook, due primarily to better than expected outcomes for China and the United States in the first half of this year and a response by governments on a massive scale. However, output in many countries at the end of 2021 will still be below the levels at the end of 2019, and well below what was projected prior to the pandemic.

“The world is facing an acute health crisis and the most dramatic economic slowdown since the Second World War,” OECD chief economist Laurence Boone said. “The end is not yet in sight but there is still much policymakers can do to help build confidence…Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come. Policymakers have the opportunity of a lifetime to implement truly sustainable recovery plans that reboot the economy and generate investment in the digital upgrades much needed by small and medium-sized companies, as well as in green infrastructure, transport and housing, to build back a better and greener economy.”

IHS said the reasons for fading growth include continued extreme caution on the part of consumers and businesses until an effective vaccine becomes widely available–not likely until mid-2021, a surge in layoffs and bankruptcies, rising levels of debt and financial stress, weaker fiscal stimulus going forward, and continued sizable increases in virus cases in some countries and pervasive flare-ups in others.

“The extremely uneven distribution of the pandemic’s pain will leave economic and social scars, hampering the recovery of the global economy,” the IHS economists added.