Global Economy – Impact, recovery potential and long-term effects

by: Sandra Phlippen

  • The global economy is expected to shrink by 4,4% in 2020, assuming that nationwide lockdowns to combat a second wave of Covid-19 are unnecessary.
  • Recovery from summer reopenings has ground to a halt due to second-round effects and second (virus) wave effects. The latter are causing damage even without lockdowns.
  • Official unemployment figures are not telling the whole story. In the US, the rise in permanent layoffs is much more fundamental than headlines of furloughed workers losing and then returning to their jobs. In Europe, if about one-fifth of people in short-time work arrangements eventually become unemployed, joblessness could move to around 12% in 2021.
  • Another hidden threat to growth is the zombification of businesses that remain afloat without demand for their offerings. Letting the economy adjust could be welfare increasing, but at the cost of a large social divide.
  • In the long run, Covid- 19 is likely to increase ongoing trends such as lower rates, deglobalisation, and tech dominance. Tech dominance could become a threat to the social contract that holds our society together.
201016-Global-Monthly_Impact-recovery-potential-and-long-term-effects.pdf (154 KB)