My friend and colleague on the FIDE Global Strategy Commission, Grandmaster Kenneth Rogoff, professor at Harvard University, gave a great interview to Bloomberg in which he outlined a number of important problems with the current economy.
It should be noted here that Rogoff is consistently ranked among the world's most influential economists and is considered as a leading expert on the history of the global financial crises. Together with Carmen Reinhart, he is the co-author of the popular book "This Time Will Be Different. Eight Centuries of Financial Foolishness”.
The link to the original source will be below, but I will highlight the most interesting points.
1. The peculiarity of the current crisis is the high rate of expansion. This is indeed the first global crisis since the Great Depression. After all, in 2008 it was the rich countries, not the emerging markets, which were primarily affected.
At the same time, each country faced the need to take the toughest and most effective measures against the spread of the virus. Asia reacted much faster and with much better short-term results than Europe and the United States.
2. The aggressive economic policy response to the pandemic was absolutely necessary and stems from the lessons of 2008. In Europe they try to save companies and jobs, in the U.S. they subsidize people, but allow high unemployment. The two approaches are not so different. In the end, many European firms will eventually have to shut down and let employees go. And some U.S. companies will rehire their people in their former positions.
3. It is not entirely clear how long it will take the world to get back to 2019 growth rates, but so far five years seems like a good result. That said, we can see that markets are very optimistic about a post-pandemic recovery, but the true extent of the GDP decline will be debated by economists for years to come. We are probably talking about much more serious losses. And all these discussions will take place against the background of mass bankruptcy of companies in many industries.
4. Globalization and technology have had the greatest positive effect on productivity in the last 40 years. Technology without globalization immediately begins to lose power. At the same time, trade and human mobility are disrupted. Our common home is in the middle of a massive tornado, and we don't know exactly where it will collapse. There is too much suspense, but most of it is unrelated to growth.
5. Probably, many emerging economies will demand a moratorium on debt. But just as hospitals cannot cope with all Covid-19 patients, the IMF cannot help all states at once.
6. Most of the world's economies have rapidly increasing major debts. There is no doubt that these funds are needed to maintain economic, political and social stability in societies. We are talking about a 25-30% reduction in the economy - this reduction is unbelievable! But what's on the other side of the coin? The financial markets believe there will be no inflation. If they are right, everything will be well. In other case, the situation will get even worse and more prolonged.
7. Southern Europe will face incredible difficulties in the coming years. And the right prescription could be debt relief, primarily for Spain and Italy, which would then pay off with growth for the entire Euro zone. But if the EU does not come to a consensus on this, the Euro zone will literally start to tear itself apart.
8. China's growth is projected to slow down steadily. If in the next two or three years the Chinese economy grows at an average rate of 1%, it can be considered a success.
9. The market is in anticipation of deflation, falling productivity and de-globalization. At the same time, the vast majority give no chance for inflation, which is probably a misconception.