As we enter the second wave of the coronavirus pandemic, economists are predicting the future of the world economy.
With the coronavirus pandemic approaching its 6th month, many economists are starting to become hopeful about the world economy’s chances of recovery: nations that have started recovering early –thanks to great leadership and proper crisis management –are crucial to being the blueprint for other countries.
New Zealand, South Korea, Germany, and Taiwan are starting to economically recover from the 21st century’s worst pandemic to date, and have started showing numbers similar or comparable to pre-pandemic rates.
But let’s be real: how likely is it for countries to see their numbers go back to normal?
Well, as it turns out, it’s actually quite likely. Economists have settled on 3 different recovery models that they feel would be the most likely for countries affected by the pandemic.
But despite this likelihood, some economists are not so optimistic: a poll by Reuters show that some economists believe that the world economy would shrink by up to 6% by the end of the year.
Of all their forecasts though, these are some of the most optimistic scenarios being discussed:
The Best-Case Scenario: A “V”-Shaped Recovery
Whether it’s a pandemic or just a general slow-down of an economy, the V-shape is the best-case scenario for economists. It describes a plunge in overall growth, but is then followed by an equally sharp recovery.
From January to June, the world economy saw a GDP contraction that hasn’t been seen since 2009 at the height of the Subprime Mortgage Crisis. However, the next few months and up to the next couple of years, governments are churning out fiscal and monetary stimulus programs for their private market, a crucial move if nations want to get on a swift rebound.
With quarantine measures easing up around the world, many businesses are starting to re-open, and a majority of economists want to see this, albeit cautiously, as a sign of hope and recovery.
The Slow Burn
Some economists, on the other hand, are a little more cautious with their predictions: despite the ease-up on quarantine, many nations still have plenty of restrictions in place, meaning that, while some businesses can re-open, it won’t be enough to instigate a full recovery immediately.
Rather, some economists predict a slow, gradual recovery, a ‘slow burn’ that takes the shape of a U in economic models. This is a recovery prediction that takes place over several quarters and up to a couple of years. These predictions are based on the fact that 2009’s economic crisis had a faster and deeper contraction than the one felt by the coronavirus.
As the world takes on the ‘new normal’ of social distancing measures, many small businesses (the backbone of America’s economy) and certain industries (e.g. the food and beverage industry and tourism) are going to operate at a reduced capacity, meaning lower revenues, lower employment, and overall, lower contributions to the economy as a whole.
But despite the bleaker outlook, a gradual recovery is still in the works; it’ll just take a little longer.
Or, as some economists like to call it, the double V, a double-dip recovery model sees a brief period of growth in between the initial plunge and the eventual recovery. This is a likely scenario for countries that are able to provide financial bailouts and monetary stimulus packages to the private sector: the government will help, but that help is temporary.
The double-dip is a recovery model that we are seeing in countries that have seen or are experiencing a second wave of coronavirus infections, and can be attributed to a temporary reprieve from economic recession.
Still, economists believe that, over time, and as vaccines against the coronavirus have been prepared, countries will start to completely lift quarantine restrictions and bring back a semblance of normalcy to their respective business space.
Predicting the Future?
Of course, these are all predictions, grim or otherwise: the pandemic forced world economic activity to go from robust to a full stop in just a few days, practically overnight in economic terms. Ultimately, the fate of the world economy will rely on a cure, and the hope that businesses will be able to adjust to the ‘new normal’.