When the pandemic gripped the world’s economies in March and early April, forecasters projected it would have a devastating economic effect. The April 2020 world output estimates of the International Monetary Fund (IMF) were pessimistic, but now it seems not enough so. Poor pandemic management in the U.S. is slowing down world economic recovery.
Controlling the pandemic back in March and April required a near-complete shutdown of consumer spending on leisure and entertainment, domestic and world travel, and all forms of mass gathering, including business conferences, sports events, shopping centers, and food establishments.
The initial economic effects were more drastic than anyone imagined. Previous pandemics, such as SARS and Ebola, were contained regionally. Furthermore, the affected areas recovered entirely afterward. Because of this, world governments were optimistic about a quick rebound and V-shaped economic recovery following COVID-19.
Now, those governments are more guarded. Not only are forecasters questioning whether the recovery will be rapid, but whether we might ever return to some semblance of normality. Further, they also question how different the new world might be from anything we have known before.
Recently, the IMF downgraded its June projections for world output growth in 2020 to -4.9 percent (a reduction of 2 percentage points since April). U.S. economic output growth for 2020 has been downgraded to -8.0 percent, from -6 percent in April. Across the Eurozone, the projected output is now -10.2 percent, with France, Italy, and Spain, each expecting greater than -12 percent declines. Even more notable, 2020 growth in China is estimated to be just 1 percent, falling from 6.1 percent in 2019.
Numerous factors are complicating the pace of recovery. They include the following: renewed lockdowns of regional and national economies; uneven compliance with recommended health guidance such as mask-wearing and social distancing; exhaustion of emergency income support programs for households and small businesses; significant disruptions of small business demand and employment patterns; major corporate bankruptcy filings and downsizing plans; and the utter failure of the U.S. to control its pandemic outbreak.
Each of the complicating factors mentioned above is important, but the last is perhaps the most problematic. Specifically, the failure of the U.S. government to control the COVID-19 pandemic means many state economies will have to lockdown once again. While some Republican governors assert, they will never shut down again; those same governors maintained they would not mandate mask-wearing. Now they have!
The absence of a national pandemic strategy in the U.S. means the virus spread will force the hands of governors who have heretofore indulged the political whims of the President, rather than follow the advice of health professionals.
The U.S. accounts for 17 percent of world output. When its economy stumbles, the world’s economy follows suit. World trade in goods and services for 2020 is projected to decline by 13.4 percentage points. The U.S accounts for a significant share of that decline because of the disruption of U.S. corporate supply chains and consumer purchases. The stumbling restart of the U.S. economy is dampening world trade and global economic recovery.
What seems so simple has become so enormously difficult to achieve. That is, to restore healthy economic growth; we must manage the pandemic effectively – not pretend that it does not exist.