Economies can rebound quickly from massive GDP slumps—but not always

IT WILL BE some time—years most likely—before the full extent of the economic blow from covid-19 can be estimated with any confidence. As ever more of the global economy enters a prolonged shutdown, it seems increasingly clear that the world is facing a drop in output unprecedented in its breadth and intensity. Some analysts see in the growing economic disruptions and market panic the first stirrings of an economic collapse more serious than the global financial crisis of 2007-09. Joachim Fels, an economist at PIMCO, an investment fund, recently warned that in the absence of sufficiently aggressive action from governments the world could face a market meltdown and ensuing depression. All downturns create discomfort, but the pain of a slump—even a very steep one—depends greatly on how long it lasts. History suggests that rapid rebounds from enormous output losses are possible, but not by any means guaranteed.

Some economies, perhaps those of Singapore or even South Korea, could find a footing by the second half of the year, sufficient to offset some of the production lost during the first half. But the probability that others could experience extreme declines in GDP in 2020—perhaps as large as 10%—grows by the day. Falls of that magnitude are not especially unusual in developing economies, where growth is highly...

via The Economist: Finance and economics Business Feeds

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