Question

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Economic Recovery Is Under Way but Fighting Flare-Ups Is Key

The global economy suffered a severe contraction in the three months through June, and it is becoming clear that the strength of its recovery will depend on authorities’ success in dousing continued pandemic flare-ups.

Countries’ freshest economic-growth figures, to be released in coming weeks, are likely to show the global economy entered a recession in the first half of this year and shrank in the second quarter at the fastest peacetime rate since modern records began after the Great Depression.

The global economic recovery has begun, but there are mixed signals about its health and staying power. Some sectors have sprung back to life more decisively than expected, and they include retailing and manufacturing. The flip side is it appears that, until a vaccine becomes widely available, surges in coronavirus infections will repeatedly have a damping effect on activity.

“In the absence of a medical solution, the strength of the recovery remains highly uncertain,” said Tao Zhang, deputy managing director of the International Monetary Fund, in a speech this month.

The European Commission estimates the eurozone’s gross domestic product in the three months through June was 13.6% lower than in the first three months of the year, when output dropped 3.6%—then the largest decline since records began in 1995.

In the U.S., the Federal Reserve Bank of Atlanta on July 9 estimated that U.S. GDP declined 10.3% in the second quarter compared with the first quarter. If that were to prove accurate, the drop would be four times larger than that seen in the worst quarter for the economy after the 2008 financial crisis. At the start of June, the model was suggesting that GDP would fall by almost 18%.

Recent figures from other parts of the world also point to large declines in GDP during the second quarter. Singapore this past Tuesday said its economy shrank by 12% in the second quarter.

However, recent figures indicate that the global decline in activity largely ended in April, with May and June seeing pickups. In the U.K., which is one of a handful of countries to release monthly figures for GDP, the economy grew by 1.8% in May from April.

China is two months ahead of most other major economies, having initiated its lockdown in late January and lifted many of those restrictions in April. The country Thursday reported that its economy grew in the second quarter and at a faster pace than expected, an outcome that other countries would be happy to see in the third quarter.

Other measures point in the same direction. The eurozone has recorded increases of 17.8% in retail sales and 12.4% in industrial production for May. U.S. retail sales rose 18.2% in May and 7.5% in June, the Commerce Department reported Thursday.

Those and other indicators prompted an early flush of optimism among central bankers, with Bank of England Chief Economist Andrew Haldane declaring in a June 30 speech, “so far, so V,” meaning a steep decline in output followed by a similarly sharp rise.

But recent weeks have raised fresh questions about the strength of the rebound. In particular, signs abound of a loss of economic momentum in the U.S. as rising infections across several U.S. states prompt authorities to impose new restrictions, businesses to scale back and consumers to turn more cautious in some parts of the country.

“The issue is how fast are we going to grow out of this big decline we had in the second quarter, and unfortunately with this resurgence in disease, it’s muting that rebound,” said Federal Reserve Bank of Dallas President Robert Kaplan in a video appearance last Monday.

In the U.K., the city of Leicester has been locked down to contain a surge in infections linked to its textile industry, while localized shutdowns have also been imposed on Indian cities and many other parts of the globe.

Economists worry that those outbreaks not only reduce current activity, but will make consumers and businesses more wary of returning to normal patterns of behavior. While governments have spent huge amounts to keep businesses afloat and ensure household incomes hold up, they have devoted fewer resources to preparing for what is likely to be a long series of firefighting exercises, economists say.

Former Federal Reserve governor Randall S. Kroszner, an economist at the Chicago Booth School of Business, said it is imperative that governments quickly improve their ability to identify and contain localized infection outbreaks, partly by investing more in data gathering.

“If we continue to get these flare-ups, this could lead us into a W-pattern,” he said in a videoconference, referring to an economic growth path that would see a brief recovery followed by a fresh downturn before turning up again.

Answer 1

The global economy depends on authorities and their management to end this pandemic while recession data shows global economy shrank and enetred recession after Great Depression scenario.

Some sectors like retail and manufacturing are revived while some send mixed signals until vaccine is available. The Eurozone GDP declined 3.6 percent while US GDP data shows decline of 10.3 percent in first half 2020. Singapore shrank by 12 percent while UK and China grew as the only nations amongst pandemic.

However the predictions says that global economy is posed for V shape recovery while some argue for W shape recovery.

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