The long-term economic impact of COVID-19

Azad Zangana, Senior European Economist and Strategist, Schroders
Azad Zangana, Senior European Economist and Strategist, Schroders

Progress remains patchy as the world economy emerges from the Great Lockdown, with many countries ill prepared for the next cyclical downturn, Schroders economists cautioned.

Speaking at Schroders inescapable truths: The long-term impact of Covid-19 media webinar last week, Schroders Chief Economist, Keith Wade, commented:

“The world economy is emerging from the Great Lockdown, but progress is patchy. The US and UK appear to be leading the way, while China remains robust. The eurozone is following, albeit more slowly due to an uneven start with its vaccine programme. Nonetheless, the overall picture is one of developed markets outperforming emerging markets, with economies like India and Brazil struggling to contain the virus.

“The other fault line opened up by the pandemic has been inequality within economies, which has likely increased on both an income and wealth metric. So, although populism has not reared its head during the pandemic, it is likely to return.

“Meanwhile, on a more positive note, the ability of economies to adapt, facilitated by the acceleration in technology, holds out the promise of stronger productivity growth. We have raised our medium-term forecasts as a result, despite the persistence of adverse demographics.

“Against this backdrop there are no easy answers for investors who will need to ride the disruptive trends and find the pockets of growth in the world economy. What seems clear is that governments may now be playing a greater role in driving those trends.”

Furthermore, Schroders Senior European Economist and Strategist, Azad Zangana, commented:

“Governments have been forced to borrow eye-watering amounts during 2020 to support households and firms as restrictions on activity were imposed. Most of the borrowing was due to expansionary fiscal policy, but a significant amount was down to lost revenues too.

“Though most countries have tried to use temporary spending increases and tax cuts, most will need to use austerity to reduce annual borrowing, and stabilise their growing debt positions. Interestingly, not all countries are expected to complete their austerity programmes by 2025.

 “As a result of higher borrowing, debt levels will reach unprecedented levels as a share of GDP, which will inevitably raise questions about affordability and sustainability.

“Our analysis on fiscal space shows that a significant number of countries are in danger of being ill prepared for the next cyclical downturn. By 2025, projections show one quarter of major economies may still lack fiscal space to manoeuvre, while simultaneously still suffering a drag on their annual budgets from sub-trend cyclical performance.”

To find out more, please click through below to read Keith and Azad’s research in more detail –

Inescapable Truths update: which trends have been strengthened or challenged by Covid-19?

Which countries’ finances will suffer the worst long-term scarring from Covid-19?.

Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za