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| Photographer: Paul Hanna/Bloomberg |
The world economy is entering the second half of 2020 still deeply weighed down by the coronavirus pandemic with a full recovery now ruled-out for this year and even a 2021 comeback dependent on a lot going right.
It’s a scenario few if any predicted at the start of the year when most economists were banking on another year of expansion and a U.S. and China trade agreement was meant to give corporate and investor confidence a shot in the arm.
Instead, the rare pandemic forced swathes of the global population into what the International Monetary Fund dubs ‘The Great Lockdown.’ Central banks and governments responded with trillions of dollars in unprecedented support to prevent markets from melting down and to keep furloughed workers and struggling companies afloat until the virus passed.
Even with those rescue efforts, the world is still suffering its worst economic crisis since the Great Depression. While some gauges of manufacturing and retail sales in major economies are showing improvement, hopes for a V-shaped rebound have been shattered as the reopening of businesses looks shaky at best and job losses risk turning from temporary to permanent.
It’s an economic trajectory Federal Reserve Bank of Richmond President Thomas Barkin has likened to riding the elevator down, but needing to take the stairs back up.
“There is a real danger of confusing rebound with recovery,” Carmen Reinhart, the World Bank’s chief economist, said at the Bloomberg Invest Global conference on June 23. “True recovery means you are at least as well off as you were before the crisis started and I think we are a long way off that.”
Uncertain Times
Much depends on the spread of the coronavirus, a vaccine for which remains out of grasp. The World Health Organization warns the worst of the pandemic is still to come as cases top 10 million and deaths have risen beyond 500,000. And even in countries where the virus appeared contained, fresh flare ups are frequent.
The IMF estimates that by the end of this year 170 countries — or almost 90% of the world — will have lower per capita income. That’s a reversal from January, when it predicted 160 countries would end the year with bigger economies and positive per capita income growth.
It’s now likely that global gross domestic product by the end of 2021 will in many cases still be lower than where it was at the end of 2019, according to HSBC Holdings Plc economists led by Janet Henry. Bloomberg Economics describes it as ‘Goodbye Victory V, Hello Worry W.’
Central bankers remain on the alert to do more. Federal Reserve Chairman Jerome Powell has warned the outlook is “extraordinarily uncertain” and European Central Bank President Christine Lagarde has spoken of a “restrained” recovery that will change parts of the economy permanently.
Source: Enda Curran | Bloomberg
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