SUNNIER GROWTH WITH A CHANCE OF VOLATILITY

THE PANDEMIC WILL LEAVE SOME ECONOMIC SCARS GLOBALLY; GIVEN THE UNCERTAINTY IN THE GLOBAL ECONOMY AND POLITY, OUR POLICYMAKERS MUST AVOID DOGMA AND REMAIN AGILE

- Neelkanth Mishra

''Hope 2021 is better than 2020” sets a really low bar when it comes to New Year wishes, but as the battered global economy limps back to normalcy, it is likely that 2021 will be better, particularly now that we have vaccines. The question is, how much better?

Unlike some past pandemics that reshaped economies with their high fatality rates, the economic impact of Covid-19 was primarily through the administrative interventions to slow its spread, as governments bought time to understand it better, and for the development of vaccines. So then, if lockdowns caused the economic slowdown, should not their lifting bring economic normalcy? Unfortunately, economic recessions can also impair productive capacity, somewhat like a piece of metal that once bent cannot be fully straightened again: firms shut down, households and firms lose assets or take on more debt to survive the downturn which then affects their ability to consume or invest for several years, consumer and investor sentiment weakens, and economic relationships break, like between employer and employee and suppliers and customers.