Swift Economic Recovery Expected After COVID-19

In BICSI Blog, BICSI Bytes, Featured, Newsby info@bicsi.com.au

We‘ve been confronted with a lot of negative economic consequences of COVID-19 lately – some of the worst single-day losses in stock-market history, massive jobless claims and the steepest and fastest decline in global economic activity on record.

But international market research firm Statista has compiled information that shows an optimistic bigger picture.

While all these figures are alarming, there is one thing that separates the economic crisis brought about by COVID-19 from past crises. As opposed to say the financial crisis of 2009, the current downturn wasn’t caused by something fundamentally wrong with the financial system or the overall economy, but by the measures necessary to contain a public health crisis.

When asked about the frequently drawn comparison to the Great Depression of the 1930s, former US Federal Reserve Bank Chairman Ben Bernanke told CNBC that the current crisis “is really much closer to a major snowstorm or a natural disaster than it is to a classic 1930s-style depression,” which leaves hope for “fairly quick rebound.” That is, if the aid package passed by US Congress last month proves effective in keeping affected businesses and households afloat during the shutdown period.

The International Monetary Fund (IMF) most recent World Economic Outlook fuelled hopes of a ‘V-shaped recovery’. The IMF revised its GDP growth forecast for the global economy from 3.3% to -3.0% for this year, but expects a return to growth in 2021. That’s assuming, according to the IMF “that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound.” The IMF is calling for effective policy measures to be taken to limit the economic harm done by lockdown measures, thereby predicting a V-shaped recovery for the world economy. The contraction this year is expected to be severe, but the IMF carefully predicts a quick recovery in 2021.

In economic terms, a ‘V-shaped recovery’ is broadly defined by a sharp decline in output, employment or any other metric measuring the health of the economy, followed by a quick and sustained recovery. It is different from an L-shaped recovery, in which the economy slumps for a longer period of time.

A ‘V-shaped recovery’ is what economists are hoping for in the current COVID-19 crisis. Trying to contain the spread of COVID-19, countries around the world went on more-or-less complete lockdown, resulting in a sudden drop of economic activity. Businesses operating in the travel, tourism and leisure sector lost their entire income stream practically overnight as strict social distancing measures were put in place, forcing airlines to ground their fleets, hotels to close doors and restaurants to pivot to takeaway service. But since there is nothing fundamentally wrong with the economy, many are hoping that the recovery will be just as swift as the downturn itself, once the outbreak is under control or a vaccine is found.