A year of living dangerously
The coronavirus crisis is first and foremost a public health threat, but it is also, and increasingly, an economic threat. The so-called “Covid-19” shock will trigger a recession in some countries and a deceleration of global annual growth to below 2.5 per cent -- often taken as the recessionary threshold for the world economy. The resulting hit to global income compared with what forecasters had been projecting for 2020 will be around the trillion-dollar mark; the bigger question is could it be worse?
The duration and depth of the crisis will depend on three variables: how far and fast the virus spreads, how long before a vaccine is found, and how effective policy makers will be in mitigating the damage to our physical and economic health and well-being. The uncertainty surrounding each of these variables is adding to people’s sense of anxiety, which is a fourth variable that will shape crisis outcomes.
There are two possible readings of the economic consequences of the Covid-19 shock. The consensus view is that the shock has the potential to upset what was a spluttering but otherwise well-aligned global recovery that had set in during the second half of 2017, with the policy task at hand to nullify the new threats to a renewed economic confidence that had underpinned a string of optimistic growth forecasts for the coming years.