Likelihood of a recovery by 2021 dims, with some seeing a delay of up to three years
The coronavirus pandemic has been widely expected to rob the global economy of more than $5 trillion of growth over the next two years.
It’s been signaled that a global economic rebound to pre-pandemic levels would happen by 2021-end. While still viewed somewhat likely, some now see recovery being delayed by up to three years.
“Given the unrelentingly bad news and data on the coronavirus disease 2019 (COVID-19) virus and the economic carnage, there is high likelihood that the near-term outlook will get worse before it gets better,” cautioned Nariman Behravesh and Sara Johnson, global economists at IHS Markit.
IHS Markit, which publishes widely watched surveys of business and economic activity, in a report revealed how it now sees recovery in global economic output to pre-pandemic levels taking another at least two to three years at the most.
Over $5 trillion two-year global hit
The coronavirus pandemic has been widely expected to rob the global economy of more than $5 trillion of growth over the next two years – a warning from Wall Street banks as the world plunges into its deepest peace-time recession since the 1930s.
The downturn was predicted to be short-lived even as the lockdown forced businesses to close and people to stay home. But it was widely understood that it would take much longer for economies to make up lost ground after economies reopened post-lockdown.
“A combination of factors will make the post-crisis recovery unusually slow,” the IHS Markit economists explained. “A tidal wave of bankruptcies among small and large industries will make restarting the manufacturing sector more challenging than in typical recoveries.
“Moreover, the damage to the finances of households and businesses will substantially delay any return to old spending levels.”
Downturn eases amid more contractions
The downturn in activity across has begun to ease as lockdowns introduced in most parts of the world to help stem the spread of coronavirus are relaxed, but most economies are still set for a historic contractions in the second quarter of this year.
Even with unprecedented levels of monetary and fiscal stimulus, economists earlier warned that gross domestic product is unlikely to return to its pre-crisis trend until at least the end of next year or at the most by 2022 – a timescale similar to the aftermath of the global financial crisis just over a decade ago.
“The fear of crowds will postpone any return to “normal” in the travel and leisure industries,” the economists added. “Even massive stimulus will only offset a small part of plunging growth.”
Morgan Stanley had warned that despite an aggressive policy response, it will be the third quarter of 2021 before GDP in developed markets returns to pre-virus levels. Deutsche Bank signaled the US and European economies alone to be $1 trillion below pre-virus expectations by the end of 2021.
Recovery at the latest by early 2022
While Citigroup saw a global hit of around $5 trillion, JPMorgan Chase & Co. put the lost output at $5.5 trillion or almost 8 per cent of GDP through the end of next year; with the cost to developed economies alone seen similar to those witnessed in the recessions of 2008-2009 and 1974-1975.
“The fastest we can expect output in key economies to return to pre-pandemic levels is early 2022 — in many economies the recovery could be even more prolonged,” the economists at IHS Markit noted. But that’s if everything goes right.
“Crucially, any resurgence in the number of infections will only worsen these trends – the recent flare up of cases and re-imposition of restrictions in South Korea and parts of China are worrisome.”
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