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The coronavirus pandemic changed the world entirely. Nothing like this scale has happened since World War 2. Markets crashed, the economy suffered, a lot of people were left without jobs. Face masks became a new reality. 2 million people have already died and Covid-19 shows no signs of slowing down.
It should be noted that some countries faced a second and even the third wave of the virus. Strict lockdowns were imposed in European states. The economy is still struggling and in this article, we will talk about its perspective and how fast it is going to recover after Covid.
Judging by the latest statistics, economic activity in the manufacturing sector and in the services sector in the world’s largest economies, which collapsed sharply in March-April, 2020 is beginning to recover. Given how strong its decline was in response to the worldwide restrictions, the rebound, albeit relatively modest, was quite expected, especially in manufacturing. The main question is whether this recovery will be able to continue, and what its trajectory will be.
Of the $2.9 trillion allocated to boosting the U.S. economy as part of the CARES package, $500 billion is part of the Paycheck Protection Program. The central banks of other countries were taking similar steps to support their economies. The total balance sheet of all the leading central banks is currently estimated at $22 trillion. But will all these measures help the rapid V-shaped recovery of the world economy?
The recovery of the world economy will be gradual: if you designate the terms, it is a cross between V-shaped rapid recovery and L-shaped stagnation. The process of recovery of the global economy will take several years, with possible drawdowns in the case of new waves of coronavirus. The main impact of the virus fell on the service sector, which is recovering harder and slower than production.
Because of unemployment and the difficult economic situation, a lot of people were forced to think of something new to earn money. Left unemployed, some people were willing to learn Forex trading to master new strategies, and try to make a living. Many were successful and powered through the hard period relatively easily.
There are several vaccines already that have been approved for emergency use, but still, it will take some time. According to the news here, which is one of the most prominent brokers in the world, markets are still unstable because of the new coronavirus strain. The risks of the third wave of infection, social distancing, and loss of income lead to a change in consumer behavior and a restructuring of the global economy. The world economy will be adjusting towards greater digitalization and the translation of many processes online.
The recovery of the global economy may exacerbate the confrontation between the United States and China. It is expected that the contradictions between the two largest economies of the world will grow in the coming years. Given the significant interweaving of the U.S. and Chinese economies, the process of disengagement will be gradual and painful for the world economy.
Against the backdrop of the global recession, the main driver of financial market growth remains the stimulative policies of global central banks and governments. The consequence of large-scale fiscal incentives will be the growth of budget deficits and an increase in the debt load. In the years to come, high levels of debt will constrain global economic growth.
At the same time, low inflation allows central banks to pursue the ultra-soft monetary policy. A side effect of monetary stimulus is the inflating of bubbles in financial markets. In this crisis, the US Federal Reserve quickly lowered the rate to zero and announced an unlimited asset purchase program. The balance sheet of the Federal Reserve is growing at an unprecedented rate, flooding financial markets with cheap liquidity. In three months, the Fed’s balance sheet grew by 70% and exceeded $7 trillion, which is 33% of the U.S. GDP.
Unprecedented stimulus measures allow to smooth out the problems in the real economy in the perception of investors. In addition, the stock market is playing down expectations of a recovery in the global economy as quarantine restrictions ease. The data on the U.S. labor market showed that already in May the world’s largest economy returned to job creation and unemployment. Business indices for May pointed to a slowdown in the U.S., Europe, and Russia and recorded an increase in activity in China. Also positive for investors were the concerted actions of the OPEC countries, which helped stabilize the oil market.
In the coming years, central banks will maintain the ultra-soft monetary policy. The global disinflationary trend allows them to keep rates low, which reduces the cost of debt servicing for governments, companies, and citizens. The stimulating policy of monetary authorities will contribute to the growth of prices of financial assets. In the case of new crises, central banks will use all known tools, including unlimited asset purchases, flooding of markets with cheap liquidity, and “helicopter money.”
Vaccines are slowly being distributed across different countries but we are from witnessing the end of the pandemic. It is not going anywhere yet. But if we adhere to the rules and regulations the virus will eventually “eat” itself and the spread will be lowered down.
