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


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


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