TLTP
DUBAI
As the pandemic affects some countries more than others, economists now view most economies losing its current recovery momentum, snuffing any signs of a quick return to pre-pandemic levels this quarter. “The extremely uneven distribution of the pandemic’s pain will leave economic and social scars, hampering the recovery of the global economy,” cautioned Nariman Behravesh and Sara Johnson, global economists at IHS Markit.
“One of the most troubling and challenging aspects of the current recovery is its glaringly unequal and inequitable allocation of pain across demographic and income groups, industries and economies.” As the economy struggles to shake off the pandemic effects, worries are growing that the recovery could look like a K – one where growth continues, but is uneven, split between sectors and income groups.
“Although the unbalanced allotment of recession and crisis costs — sometimes called a K-shaped cycle — is not an unusual feature of recoveries, the difference in the prospects of the ‘have nots’, the ‘haves’, and the ‘have much more’ is especially stark in the post-COVID-19 world,” the economists warn.
After a record-breaking drop in second-quarter real GDP in most of the world, the third-quarter rebound is likely to be unusually strong, but after that, however, they revealed that they expect recoveries in most of the top economies to falter — as evidenced by high-frequency indicators. The reasons for fading growth are well understood, one being continued extreme caution on the part of consumers and businesses, until an effective vaccine becomes widely available, which is not likely until mid-2021, the economists added.
The economic drag is also attributed to a surge in layoffs and bankruptcies, rising levels of debt and financial stress, despite massive monetary stimulus and record stock prices, much weaker fiscal stimulus going forward and continued sizable increases in virus cases in some countries and pervasive flare-ups in others.
The K-shaped recovery brings back the bifurcation of the economy during the Great Financial Crisis, which is about the growing inequality seen since the early 1980s across the country and the economy. When looking at a K-shaped cycle now, the upper path of the K is financial markets, the lower path is the real economy, and the two are separated.
