As recessions go, Covid was an unusually deep one, with many advanced and emerging economies contracting by well over 10% from peak to trough and a few by closer to 20%. However, it was also unusually brief, with the period of contraction lasting for only 1-3 months in most countries, as well as atypically strong; incoming data suggest that the global economy is on track to expand by more than 5% in the third quarter alone.1
While the speed of that early recovery is undoubtedly good news, it has come with a very important catch. Rapid initial growth was facilitated by loosening restrictions on patterns of work and social activity. But that very same easing, together with a raft of public health mistakes has been responsible for the widespread resurgence of the virus.
Finding the balance
The upshot is that few countries so far have found the right balance between restarting economies and keeping populations safe. And as a result, there are signs in the US, UK and Eurozone data that the speed of the recovery is already fading, and we cannot rule out double-dip recessions in some of the worst-affected countries and regions.
The latest viral news has been a timely reminder that most of the story of this pandemic and its consequences is still to be written. Among the keys to the shape of recoveries, the extent of long-term damage done by the crisis and the nature of its winners and losers will be:
- The quality of public health responses to future waves of the virus;
- Vaccine development and efficacy, including the ability of governments to roll them out to vulnerable populations;
- The willingness of policymakers to sustain support to households and firms for as long as private sector demand remains fragile; and
- The ability of governments to take the tough decisions required to render their economies more resilient to new crises and able take advantage of future growth opportunities.
The only certainty is difference
In fact, as we shift our gaze to our longer-term future, only one thing is certain: it will look very different to the recent past. The Covid pandemic is accelerating some trends that were already under way before the crisis. Examples include digital innovation and deployment, the slowing of globalisation, a shift towards fiscal policy as the primary tool of demand management, the way in which long-standing economic and social inequalities were eroding trust in political institutions and the quality of public policy choices, and the reinforcement of the ‘lower for longer’ problem constraining aggregate asset returns.
However, it is also generating new trends not previously foreseen or at least not anticipated so quickly, like transformations in patterns of work and travel, and the need for pandemic-resilient business, health and social models. Meanwhile, the crisis has also revealed just how ill-prepared we are for the even more serious – at least from a very long-term perspective – but slower-burning climate crisis.
View Full Article – published by Aberdeen Standard Investments on 10th November 2020
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1 Aberdeen Standard Investments, October 2020