For the World Economy, a Grim Slog Tempered by New Hopes


Nearly a year into a pandemic that has ravaged the global economy like no time since the Great Depression, the only clear pathway toward improved fortunes is containing the virus itself.

With the United States suffering its most rampant transmission yet, and with major nations in Europe again under lockdown, prospects remain grim for a meaningful worldwide recovery before the middle of next year, and far longer in some economies. Substantial job growth could take longer still.

A significant hope has emerged this month in the form of three vaccine candidates, easing fears that humanity could be subject to years of intermittent, wealth-destroying lockdowns. But significant hurdles remain before vaccines restore any semblance of normalcy. More tests must be conducted, and vast supplies manufactured. The world must navigate the complexities of distributing a life-saving medicine amid a surge of nationalism.

The very concept of normalcy now seems open to question. Even after the coronavirus is tamed into something familiar and manageable like the flu, will people habituated to keeping their distance from others return to restaurants, shopping malls and entertainment venues in the same numbers? With videoconferencing established as a replacement for business travel, will companies shell out as much as before to put them on airplanes and in hotels?

Calculating the prospects for a vigorous economic recovery entails wrestling with questions of human nature. The Depression imprinted a generation with a tendency toward thriftiness and an aversion to risk. If frugality endures this time, that would have profound and enduring economic consequences: Consumer spending typically makes up two-thirds of economic activity in countries like the United States and Britain.

“If you’re a business, you might be a bit more wary about taking on staff again,” said Ben May, a global economist at Oxford Economics in London. “You might make do with overtime for a while. Households might behave more cautiously. If that’s the case, you run the risk of economic scarring further down the line.”

Long-term damage on top of the recent economic devastation would add to the inequality that has been a central feature of recent decades, as people with greater education, advanced skills and access to stock and real estate markets harvested the winnings of expansion, while others struggled.

The pandemic has made the world more so. It has concentrated its lethal force on blue-collar workers, for whom human interaction is a necessity, striking people who labor in warehouses, slaughterhouses and frontline medical facilities. Professionals able to work from home have maintained their safety along with their incomes.

This sort of thinking was the basis for forecasts of a so-called V-shaped recovery: The astonishing collapse of major economies in the first half of the year was supposed to be followed by an equally astonishing revival.

But the global economy does not come with an on-off switch. After marked improvement in the late summer, the surge of virus cases has destroyed the hopeful scenario. The strains of the catastrophe — from failed businesses and elevated joblessness to disrupted education — appear likely to endure, potentially for years.

When the novel coronavirus first captured attention in China early this year, it prompted grave worries about a global shock. China was the world’s second-largest economy, and a voracious purchaser of goods and services, from raw materials like soybeans and iron ore to the latest gadgets from Apple. Its factories produced electronics and apparel, chemicals and construction supplies, auto parts and appliances. Disruption in China was certain to ripple outward.

The threat intensified as the virus spread to Europe, shutting down commercial life in Italy’s industrial heartland and then spreading to factories across the continent. As the pandemic assailed Europe and then North and South America, governments ordered businesses closed to halt the virus. The economic unraveling proved more intense than the global financial crisis of a dozen years earlier.

World leaders drew on the playbook from that episode, unleashing trillions of dollars of credit via central banks and direct government spending. European nations effectively nationalized payrolls to prevent layoffs. The United States delivered expanded unemployment benefits. All of this eased fears of a cascading run of bankruptcies and a potential financial crisis.

“What I’m allergic to at the moment is the notion of going back, bouncing back,” said Mr. Goldin, the Oxford economist. “It’s business as usual that got us to where we are.”


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