by From Larry Elliot in The Guardian Travel bans. Sporting events cancelled. Mass gatherings prohibited. Stock markets in freefall. Deserted shopping malls. Get ready for the Covid-19 global recession. Up until a month ago this seemed far-fetched. It was assumed that the coronavirus outbreak would be a localised problem for China and that any spillover effects to the rest of the world could be comfortably managed by a bit of policy easing by central banks. When it became clear that Covid-19 was not confined to China and that the economic effects would be more widespread, forecasts started to be revised down. But central banks, finance ministries and independent economists took comfort from the fact that there would be a sharp but short hit to activity followed by a rapid return to
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from Larry Elliot in The Guardian
Travel bans. Sporting events cancelled. Mass gatherings prohibited. Stock markets in freefall. Deserted shopping malls. Get ready for the Covid-19 global recession.
Up until a month ago this seemed far-fetched. It was assumed that the coronavirus outbreak would be a localised problem for China and that any spillover effects to the rest of the world could be comfortably managed by a bit of policy easing by central banks.
When it became clear that Covid-19 was not confined to China and that the economic effects would be more widespread, forecasts started to be revised down. But central banks, finance ministries and independent economists took comfort from the fact that there would be a sharp but short hit to activity followed by a rapid return to business as usual.
This line of thinking has exact parallels with the events of 2007, when it was initially assumed that the subprime mortgage crisis was a minor and manageable problem affecting only the US – and nobody needs reminding how that ended.
If history is any guide, the global economy will eventually recover from the Covid-19 pandemic, but the idea that this is going to be a V-shaped recession in the first half of 2020 followed by a recovery in the second half of the year looks absurd after the tumultuous events of the past week.
What’s more, policymakers know as much. The Federal Reserve – the US central bank – does not need to be told by Donald Trump that it needs to cut interest rates and resume large-scale asset purchases known as quantitative easing. Wall Street is looking to the Fed to pull out all the stops when it meets on Wednesday and the world’s most powerful central bank cannot afford to disappoint. read more