Swift Recovery After COVID-19

When it comes to the economic fallout of the COVID-19 pandemic, we‘ve been confronted with several negative superlatives in recent weeks (although it feels much longer than that). We’ve seen some of the worst single-day losses in stock market history, jobless claims that are literally off the charts and what is likely the steepest and fastest decline in economic activity on record.

And while all these figures are certainly cause for concern, there is one thing that separates the economic crisis brought about by the coronavirus from past crises. As opposed to say the financial crisis of 2009, the current downturn wasn’t caused by something fundamentally wrong with the financial system or the overall economy, but by the measures necessary to contain a public health crisis. When asked about the frequently drawn comparison to the Great Depression of the 1930s, former Fed Chairman Ben Bernanke told CNBC that the current crisis “is really much closer to a major snowstorm or a natural disaster than it is to a classic 1930s-style depression,” which leaves hope for “fairly quick rebound.” That is if the aid package passed by Congress last month proves effective in keeping affected businesses and households afloat during the shutdown period.

The International Monetary Fund updated its World Economic Outlook on Tuesday, fueling hopes of such a V-shaped recovery. The IMF revised its GDP growth forecast for the global economy from 3.3 percent to -3.0 percent for this year but expects a return to growth in 2021. That’s assuming “that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound.” However, “the risks for even more severe outcomes are substantial,” the IMF notes. “Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.”

What’s arguably the biggest question in terms of long-term economic effects of the ongoing pandemic is how well debt-ridden countries such as Italy, Spain and the United States for that matter can stomach the hundreds of billions in additional debt necessary to safeguard acutely affected sectors and people during the lockdown period. The IMF calls for strong multilateral cooperation to “help financially constrained countries facing twin health and funding shocks.”