Covid-19: what will happen to the global economy? | The Economist

kovat 19 has battered the global economy causing the worst recession since the Great Depression of the 1930s it will be a new economy where many areas of the economy won't go back to the level of output that they have thought you submitted your questions to Zanny Minton Beddoes our editor in chief and Edward Carr our deputy editor here are their answers will the economic shock caused by imposing lockdowns prove more costly than the pandemic itself if you are a poorer country that doesn't have the capacity to provide the the kind of fiscal and monetary support on a scale that advanced economies have done the cost is is huge but secondly I think even within the advanced world it's interesting that countries which have not locked down nearly as rigorously and Sweden stands out as the country that has you know essentially not had a formal lock down actually has seen its economy shrink pretty much by the same amount as Denmark right next door which had a much much tougher lock down and that's of course partly because people behave in a way which reduces economic output they're not spending they're staying at home but also because the overall kind of global economic environment has been hit so hard but that has had knock-on effects and then the other point that's interesting I think as we go on in time is one it depends on how successfully citizens think their governments are handling things and there I point perhaps with some concern to the case in the United Kingdom where we are seeing a lock down what was implemented somewhat later and now as a result a government that is reluctant or is lifting the lock down more slowly with the result that the economic costs are going to be really quite high and so the the relationship between the two I think can evolve depending on how government handles things and is perceived to be handle things how could an economic recession shift the global balance of power it's come as a surprise to everybody how the United States which in previous things crises like this would have played a central role in kind of galvanizing the world hasn't done so in fact it's threatens to withdraw from the World Health Organization and that I think is a big signal that everybody else is going to have to come to terms with that's not directly the result of a recession but it's the result of the country's response that would have been coordinating both medically and economically the response to the pandemic will this be a chance for China to become the global financial hub the starting point of course is that the u.s. is the absolutely dominant country in global finance the dollar is the dominant currency in global finance whether it's the kind of plumbing of the global financial system or the currency that most central banks hold their reserves in the question is has always been when with that dominance be challenged by the world's second largest economy China but because China doesn't have a convertible currency it's always under played in global finance but I think in the last few years and very recently particularly we are seeing signs that China's prominence will accelerate one reason is the growing tension between the US and China that the US has increasingly been using the financial system as a weapon by imposing sanctions the second is actually the growth of China's own capital markets it is developing its financial markets but its currency is still not convertible and so I think only when that happens is it really going to challenge the dollar and it is certainly possible that the aftermath of of kovat will accelerate that this kind of thing takes a long time to happen I mean if you look at the last time this happened in the 20th century when the dollar took over from the pound it was quite a slow process and you know long after Britain's decline was very evident the pound was still a very important global currency so these transitions take a while and and you know it's not going to happen anytime soon but the incentives are clearly growing and there is actually one reason that I think why this time might be a bit faster which is China is has done a huge amount to build up the sort of financial technology required for a digital if you look at the super apps within China and I paid all of those they are much much better and more sophisticated than than what is in the West and so I think they have moved ahead in actually the sort of financialization of the digital era in a way that could probably be exported particularly to developing economies and if developing economies are increasingly going to be forced to choose which ecosystem they're in the China the Chinese one has has some Aloha there which countries are most economically vulnerable to the effects of covert 19 and why first it says the economy economic effects are determined largely by the medical effects but then there are other things like which particular industries are important so tourism seems to me to be a clear category where at least sort of one year's tourism is going to be very hard hit and it might go on longer if the industry can't adapt and if there isn't a vaccine so you should look for and just just where people working very close and confined conditions some of the garment industries where that's an important export sector you might see that being a problem and then others where you know industry and work requires people to be very densely packed I think the one thing I'd add to that is countries that whose governments don't have the capacity to borrow and to to cushion this for their citizens and that's particularly developing countries heavily indebted developing countries countries that have to rely on dollar borrowing for them it's really quite hard because quite often it's the same country that has been particularly hit because there's no tourism or because it's a natural resource exporter and prices have fallen and at the same time has a heavy debt burden so if you if you really want the kind of the ones that that are in the toughest position I think it's emerging economies whose exports have been hit that are reliant on tourism and that have a very big debt burden what will the impact on the jobs market be for those graduating in 2020 that's a really good question that we've been we've been thinking about a lot at the Economist and we did a cover a few weeks ago which we call the the 90% economy and the argument of that cover is that when the economy recovered we wouldn't be going back to the old economy it will be a new economy where many areas of the economy won't go back to the level of output that they had before that's why we called it that 90% economy the other reason it's going to be hard right now is that the unemployment rate is high the unemployment rate has surged and even if it's come down in the United States a little bit it's still remarkably high so just finding a job is much harder the trick for public policy is going to be to make sure that the scarring from that the shadows of that don't last then what that means is when the unemployment rate goes up the kind of it has long-term consequences and it takes as a result it means that people find it harder to get skills it's harder to sort of make a real go of the labor market and and I think we need to we need to work hard to make sure that doesn't happen this time I've seen one study in Britain that says that a third of graduates have had their offers delayed or withdrawn so there are deserts or immediate effect the interesting thing for me is is some of these kind of rather subtle but perhaps important effects about what happens when people are starting out having just left and college and often they go into you know things like restaurant work or bar work things that happen in big cities and you know that's where they make contacts where they form their own network where they might hear about a job or find their way into a career that they just didn't really know they wanted well just now those opportunities don't really exist and even if young people want to crowd into cities it's not clear that many other people will be crowding into cities and so there might be as Annie said this 90 percent economy in which these opportunities just aren't as readily available I mean some people are very lucky they know they want to be a you know computer programmer or bridge designer from you know the Year dot but but most of us kind of stumbled into what we do and that stumbling is going to be a harder how's the pandemic made globalization look like a liability I think it has in many people's eyes made it look like a liability I don't think it is and you know I think one of the very wrong conclusions to draw from this would be for countries to put up the drawbridge and to say that the only way to be safe and resilient is to produce everything at home and to to kind of end globalization I think one of the the lessons of this pandemic is that you you need to diversify your supply chains we need to rethink aspects of globalization but I really worry that if we took this as a signal to say that globalization was a bad idea and that we all need to put up the drawbridge to a more autarkic system that the world would be a lot worse off yeah it's it's an Aeron isn't it that the the thing about the pandemic is it requires a global response and no more so in finding medicines and vaccines and then distributing and manufacturing them and then ensuring that the best knowledge about treatment works I mean the best protection against a pandemic is a globalized system you can read all of our coverage on Kovan 19 by clicking the link opposite thanks for all your questions and thanks for watching you

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Keywords: The Economist, Economist, Economist Films, Economist Videos, Politics, News, short-documentary, covid-19, covid 19 cases, coronavirus, covid 19 outbreak, coronavirus update, virus, corona, coronavirus news, second wave, second wave coronavirus, lockdown, pandemic, coronavirus pandemic, coronavirus spread, economy, economic crisis 2020, economic crisis, stock market, recession

Id: pnKsrKuUfBc

Length: 10min 6sec (606 seconds)

Published: Fri Jul 03 2020