MacroBrew - The Covid 19 Endgame Part III: Lower Potential GDP Growth and Bankruptcies
The impact of Covid-19 on PGG varies across countries with emerging markets seem to be recovering from the pandemic at a slower pace than the advanced economies and thus appear more vulnerable to scarring effects and lower global potential GDP growth.
- As the world learns to live with Covid-19, it’s bringing about structural changes
- We believe a combination of secular stagnation in DM and a sizable drop in China’s potential GDP growth may have led to a decline in global potential GDP growth even without the pandemic
- While Covid-19 has both positive and negative long-term effects on this, we believe the net impact is likely to be slightly negative, especially for EM. Hence, we forecast lower global PGG in the post-Covid-19 era than before 2020 (while recognizing divergences among countries).
- Bankruptcies have, as yet, failed to rise during despite a huge hit to activity. While we expect failures to rise during the post-pandemic normalisation phase, as policymakers remove support, we think any increases are likely to be a) limited, b) sector-specific rather than economy-wide, and c) related more to structural shifts than cyclical factors.
In this episode of our Fireside Chats series we’ll be talking with economists we’ll be talking with Ting Lu and George Buckley from the Economics team for their thoughts on the potential for lower GDP growth after COVID and the risk of bankruptcies in the team’s COVID-19 endgame report.
For more detailed views on the above themes, read our full report.
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Contributor
Ting Lu
Chief China Economist
George Buckley
Chief UK & Euro Area Economist
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