Covid-19 pandemic may lead to a decade of depression and debt, according to leading macroeconomic influencers

GlobalData Thematic Research 27 May 2020 (Last Updated May 27th, 2020 07:12)

Covid-19 pandemic may lead to a decade of depression and debt, according to leading macroeconomic influencers

The global economy is expected to face a prolonged downturn due to the Covid-19 pandemic. Many have predicted a U-shaped recovery as countries slowly ease restrictions. However, as the threat of a second wave of infections looms, the recovery may be more L-shaped with a sluggish recovery ahead.

Nouriel Roubini

Nouriel Roubini, Professor at Stern School NYU, shared an article containing his views on the damage caused by the Covid-19 pandemic. He noted that the economic recovery will not be U-shaped as claimed by many economists but rather L-shaped resembling a greater depression.

Roubini noted that an L-shaped recovery means the economy will contract sharply and stay there for an extended period of time.

Danae Kyriakopoulou

Danae Kyriakopoulou, Chief Economist & Director of Research at The Official Monetary and Financial Institutions Forum, tweeted an article on Bank of England’s plans to take the cost of borrowing to below zero.

The bank cut interest rates to 0.1% in March to stimulate the economy, which was battered by the Covid-19 pandemic. Although the bank is still assessing the impact of negative interest rates on the economy, support from the banking sector may help in preventing any negative impact of the policy on the sector.

Mohamed A. El-Erian

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, shared a chart from an article depicting the decline in world trade. The chart depicts how world trade declined at the fastest pace since the global financial crisis in 2008. The article noted that the pandemic has exposed the extent to which countries are dependent on each other for manufacturing.

El-Erian added that the global business will shift towards de-globalisation, which will be driven by companies, governments and households.

Saifedean Ammous

Saifedean Ammous, an economist, shared a tweet on an estimate by King’s College London on the rise in poverty levels due to the Covid-19 pandemic. The article notes that if global GDP falls by 10% it will result in extreme poverty for approximately 200 to 300 million people.