MANILA, Philippines — Despite the fallout from the pandemic, most economies stand to return to their pre-pandemic growth trends by 2023 up to 2024, said London-based think tank Capital Economics.
In a new note, Capital Economics chief economist Neil Shearing said the global recovery from the pandemic would not follow the path of past major crises during which economies experienced lengthy periods – years or decades – of much weaker growth.
“This has understandably led to fears that a similar fate awaits once the acute phase of the pandemic passes. But we think this time might really be different,” he said.
He argues that the pickup in new digital technologies can eventually lead to pickup in productivity despite the time it would take for structures and processes to adapt and harness the productivity benefits of these new technologies.
“Once this happens, the effects can be sudden and significant,” said Shearing.
In many countries, especially in advanced economies, government support schemes have minimized long-term scarring of labor markets.
And while some capital stocks have been temporarily rendered obsolete, such as airlines and office space, the pandemic is likely to spur investments in new areas such as digital technology, he said.
Finally, in contrast to previous crises, household and corporate balance sheets have actually strengthened during the pandemic.
“Accordingly, we doubt the pandemic will set the world economy on a permanently lower path of output and depress GDP over the long-term,” said Shearing.
“On the contrary, we think most economies will return to their pre-virus levels of output by next year, and to their pre-virus trends by 2023-24,” he said.
Other than a protracted period of depression, the legacy of the pandemic will be much higher public debt burdens and another decade of negative real interest rates that will keep public finances stable.
“If this requires governments and central banks to tolerate a moderately higher rate of inflation then they will do so,” Shearing said.