How lasting will be effects of a deep global recession?
EXPERTS WEIGH OUTLOOK AS NEW COVID-19 CASES RISK LONGER DOWNTURN
As a resurgence in new Covid-19 cases continues to raise the risk of a deep global recession, economists are weighing how the pandemic-related implications could run deeper still and possibly last even longer.
“The Covid-19 pandemic will hurt long-term economic growth,” revealed Nariman Behravesh and Sara Johnson, global economists at IHS Markit. “Crises not only plunge economies into recession in the near-to-medium term, but they can also inflict long-term damage.”
Risk of W-shaped recovery
A renewed rise in new Covid-19 virus infections has increased the risk of a W-shaped economic cycle.
A ‘W-shaped’ recovery is when any economy passes through a recession into recovery and then immediately turns down into another recession.
With the global economy currently in its deepest recession since the Second World War, there earlier was reason for hope as nations worldwide reopened after the worst of the pandemic in March, with the economic impasse seen ending in record time.
While the view still stands, this is seen followed by another brief recession spell. However, compounding worries among trend watchers and analysts is how long and how deep the impact of the Covid-19 pandemic would be to the global economy in the long run. Is history repeating itself?
Effects of a deep recession
“The oil shocks of the mid1970s and early 1980s were a major cause of sluggish productivity growth for the following decade and a half,” explained the economists at IHS Markit, which publishes widely watched surveys of business and economic activity seen worldwide.
“The Global Financial Crisis of 2008–09 was, in part, responsible for lower growth in total factor productivity, labour force, and business fixed investment (the determinants of potential GDP) in the 2010s.
Recent estimates suggest that the actual level of potential real GDP by 2019 was 5–8 per cent lower compared with projections that were made before the Global Financial Crisis, an analysis by IHS Markit showed. “The coronavirus disease 2019 (Covid-19) pandemic may have similar impacts on the determinants of long-term economic growth.”
Flicker of a sharp rebound
In May and early June, there were clear indications of a sharp rebound in economic activity, after a very deep and very short recession, according to IHS Markit, but now with a renewed spike in new coronavirus infections seen in different parts of the world, the rebound is not seen lasting for long.
However, the data analytics firm had last month upwardly revised its forecast for global growth in 2020 slightly, with world real GDP expected to contract 5.5 per cent this year, followed by a 4.4 per cent recovery in 2021. A month before that, GDP was projected to decrease 6 per cent in 2020, which was more than three times the 1.7 per cent contraction in 2009 during the Global Financial Crisis.