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💡 The Big Idea
The unique impact of the coronavirus recession makes a fast recovery possible, but even after the pandemic recedes, the global economy will be facing a myriad of problems.Here’s the TLDR to our guide on how the economy in 2021.
1️⃣ Once vaccines tamp down on the pandemic, we can expect economic growth to shoot up.
2️⃣ How fast that will happen is a big question mark.
3️⃣ Meanwhile, central bankers fanning the global recovery, namely the Fed, run the risk of fueling inflation and asset bubbles.
4️⃣ And huge pre-pandemic economic quagmires await us on the other side.
5️⃣ But the coronavirus shock could lead to long-lasting changes for the better.
📝 The Details
Unlike in other recessions that can brush aside industries, this time there is no need to retrain large numbers of workers. Compared to past financial crises, banks remain solvent and willing to lend. And many households have done well, even saved more money than usual, thanks to their ability to work remotely. Once people can congregate again, the resumption of business activity is likely to bring back growth. We saw as much earlier this year in many countries where the premature loosening of public health restrictions led to economic growth, until a wave of new deaths led to reimposed restrictions.
The level of vaccination required to fully resume normal activity could take longer than many expect. Beyond simply manufacturing enough vaccines, distributing the doses is not straightforward. They need to be cold throughout transportation, and the critical supplies to administer them, specialized vials, hypodermic needles, and other “vaccine chain” items, could fall short. Inoculation could also be slowed by reluctance to be vaccinated, particularly if driven by political polarization. Rapid testing, social distancing, and mask-wearing will still be necessary for much of 2021, and neglecting these measures could delay recovery.
3️⃣ Central bankers fanning the global recovery run the risk of fueling inflation and asset bubbles.
Policy makers have engineered a market rally to recover the jobs and incomes that are still being destroyed by the Covid-19 pandemic, and are wary of doing anything that could choke off an economic recovery. But by keeping interest rates low, they’re also promoting a risk-taking frenzy that could lead to financial bubbles. The fallout could hit the poorest and most vulnerable people the hardest.
Before the first Covid-19 case, the US and China were locked in a brutal trade war, driven by broader imbalances in the global economy. Developed economies faced sagging investment and deep-seated inequality. Emerging markets faced questions about slowing growth, falling oil prices, and growing debt loads. None of that has gone away. Add to that a lengthy list of wild cards such as climate-change disasters, cyberattacks, and war.
The shakeup in how and where we work could be an opportunity to break the trend of increasingly unaffordable housing that remains a key drag on US prosperity, and to rethink the urban cores of American cities. And the coronavirus-induced spike in inequality adds pressure for policymakers to reroute the unsustainable path the global economy has been on.
The macroeconomic story of 2021 is whether they notice this and take action.