Why is the world economy so bad
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
