Fear grows that global economic woes will stretch on

The situation looks especially dire in developing countries, which have seen investors leaving this year, sending currencies plummeting and forcing people to pay more for imported food and fuel.

LONDON — During the coronavirus pandemic, fears are growing that the economic downturn will be longer-lasting than initially thought.

Governments are intensifying restrictions on business to halt the spread of the pandemic, and virus fears are impeding consumer-led economic growth.

“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth Rogoff, a Harvard economist and co-author of a history on financial crises, This Time Is Different: Eight Centuries of Financial Folly.

The pandemic is above all a public-health emergency, and as long as human interaction remains a concern, businesses cannot return to normal.

The halt of commercial activity is affecting every region of the world all at once, and experts say recovery from that could take years.

“This is already shaping up as the deepest dive on record for the global economy for over 100 years,” Rogoff

said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”

The situation looks especially dire in developing countries, which have seen investors leaving this year, sending currencies plummeting and forcing people to pay more for imported food and fuel.

Among investors, there’s hopethat any recession will be painful but short-lived, giving way to a robust recovery this year. The global economy is in a temporary deep freeze, the logic goes. Once the virus is contained, enabling people to return to offices and shopping malls, life will snap back to normal, they say. Jets will fill with families going on deferred vacations. Factories will resume, fulfilling saved

CONSUMERS ARE KEY

Consumer spending amounts to roughly twothirds of economic activity worldwide. After the virus eases, if anxiety endures and people are reluctant to spend, expansion will be limited.

“The psychology won’t just bounce back,” said Charles Dumas, chief economist at TS Lombard, an investment research firm in London. “People have had a real shock. The recovery will be slow, and certain behavior patterns are going to change, if not forever at least for a long while.”

Rising stock prices in the United States have in recent years propelled spending. Millions of people are now filing claims for unemployment benefits, while wealthier households are absorbing the reality of substantially diminished retirement savings.

Americans boosted their rates of savings significantly in the years after the Great Depression, when fear and tarnished credit limited reliance on borrowing.

“The loss of income on the labor front is tremendous,” Dumas said. “The loss of value in the wealth effect is also very strong.”

DEMAND, SUPPLY DOWN

When the pandemic started, initially in central China, it was viewed as a substantial threat to that economy. Even as China closed itself off, conventional wisdom held that, at worst, large international companies like Apple and General Motors would suffer lost sales to Chinese consumers, while manufacturers elsewhere would struggle to secure parts made in Chinese factories.

But then the pandemic spread to Italy and eventually across Europe, threatening factories on that continent.

Then the virus spread to the United States.

“Now, anywhere you look in the global economy we are seeing a hit to domestic demand on top of those supply chain impacts,” said Innes McFee, managing director of investor services at Oxford Economics in London. “It’s incredibly worrying.”

Oxford Economics estimates that the global economy will contract marginally this year, before improving by June. But that view is likely to be revised down sharply, McFee said.

Trillions of dollars in credit and loan guarantees dispensed by central banks and governments in the United States and Europe have perhaps cushioned the most developed economies. That may prevent large numbers of businesses from failing, economists say, while ensuring that workers who lose jobs will be able to stay current on their bills.

“I am attached to the notion that this is a temporary crisis,” said Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva. “You hit the pause button, and then you hit the start button, and the machine starts running again.”

Worldwide, foreign direct investment is on track to decline by 40% this year, according to the United Nations Conference on Trade and Development. This threatens “lasting damage to global production networks and supply chains,” said the body’s director of investment and enterprise, James Zhan.

“It will likely take two to three years for most economies to return to their prepandemic levels of output,” IHS Markit said in a recent research note.