The Pandemic will Change Global Economy

The Pandemic

Those who say there are no letters left in the alphabet to describe the evolution of the world economy after the pandemic are absolutely right. It is abundantly clear now that we cannot expect to see a rapid V-shaped recovery nor should we expect a complete L-shaped recovery.

The big question is :

Why would the pandemic bring lower growth ? There are several reasons :

1) Companies will be less profitable and will react by cutting fixed asset investment.

2) The distribution of income will worsen worldwide. In fact, the pandemic has caused a serious deterioration in business profitability throughout the world.

3) State intervention in the economy is leading to a much larger share of zombee companies .the fact that interest rates are to remain low will make it possible for the Government to continue to finance such unproductive companies and their related missallous savings.

4) Unstable Capital Flows — The combination of ultra -abundant global liquidity and fluctuations in risk aversion can lead to highly unstable capital focus , which remains crucial for many emerging countries. And the more an emerging company depends on external financing , the more costly this situation can be in terms of volatility of capital flows and economic performance.
Another form of financial instability may arise from the growing doubt surrounding the role of the dollar in the world economy , stemming from the lack of US leadership ,the sharp increase in US external debt and the ultra -expansionary monetary policy of the Federal Reserve

The Hiatus on Education — There has been a loss of human capital due to the discontinuation of education programmes globally .There is bound to be a reduction in fertility rates for many years, given the negative impact of the pandemic on household income for years to come.

If we analyse each of these points in greater detail, lower growth in the medium term seems unavoidable and with it , the continuation of the ultra-low interest rate environment we are in. The loss of human capital , financial capital , in addition to destruction of business fabric due to bankruptcies , are all bound to have lasting effects , which demand policies cannot do about much.

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