The global economy faced a crisis of unprecedented magnitude following the coronavirus pandemic lockdowns. A sharp global contraction in early 2020, and possible renewed dip in Europe in the fourth quarter, should nonetheless be followed by a rebound in growth in 2021.
07.01.2021 | 08:21 Uhr
The coronavirus pandemic is one of the most significant in history. This is not because of the number of deaths, however, which have been low relative to previous pandemics, but because of the dramatic changes in geopolitics, economic activity, consumer behaviour, and indebtedness that have followed the imposition of nationwide lockdowns in many countries.
So far, with over 1.2 million deaths globally, about 0.016% of the world’s population has died due to coronavirus. This is half the rate of the Hong Kong flu of the 1970s and one-fifth of the toll of the Asian flu of the 1950s. The Spanish flu at the end of World War I was estimated to have killed up to 50 million people when the global population was one-quarter of today’s level.
The coronavirus pandemic has been much less lethal because governments responded to the threat in an unprecedented fashion. Previous pandemics saw limited containment measures and consequently had a relatively modest economic impact. The response to coronavirus by contrast has led to the biggest decline in global GDP growth since World War II (see Exhibit 1). The permeation of technology in modern economies in part explains the difference in response. The internet has enabled a significant share of the population to work from home, a situation that was impossible 40 years ago.
Economies will nonetheless recover; growth is forecast to rebound to 5.2% in 2021 (Bloomberg consensus estimate). But even as aggregate demand rises, particularly after the arrival of a vaccine, the world will be a profoundly altered place. We will travel differently, shop differently, work differently and be entertained differently. Geopolitics will be different as China’s economy advances relative to other countries that managed the pandemic less well. Growth rates across countries will diverge as more flexible economies re-allocate labour and capital more easily to future growth areas.
Some of the changes will stem from changes in mentality, for example, the realisation that one does not need to fly thousands of (polluting) kilometres for a face-to-face meeting when a video call will suffice. Or to travel to the office every day.
Some of the differences will result from the dramatic increases in country indebtedness as governments financed businesses and households through the lockdowns. The end of the austerity mentality will also make it easier to finance the large investments needed to combat climate change.
Some of the changes will come because businesses fail to survive lengthy or repetitive closures. These are some of the legacies of the lockdowns.