We’re looking at the glass-half-empty recovery

The global economic ascent has begun. From encouraging data in Singapore to less-dire global forecasts and earnings from banking behemoths, the corner appears to have been turned on a disastrous period of economic history. But the skid marks won’t easily be scrubbed away.

This climb back up from the coronavirus crash, the worst slump since the 1930s, will be arduous. Deep contractions in gross domestic product will turn to more shallow ones.

The lucky countries that do show absolute growth won’t return to their former grandeur for a while. Much will depend on whether the trillions in fiscal and monetary support are withdrawn too quickly. Missteps would be fatal.

The skid marks of the COVID crisis won't easily be scrubbed away.
The skid marks of the COVID crisis won’t easily be scrubbed away.Credit:Bloomberg

Singapore, a bellwether of global commerce given its status as a hub for shipping, finance and services, is indicative of the trend. The city-state said on Wednesday that GDP shrank 7 per cent in the third quarter from a year earlier, an improvement from the 13.3 per cent drop in the second. Monetary Authority of Singapore chief Ravi Menon has warned of “deep scarring” that will persist long after the pandemic subsides. The central bank said that “underlying growth momentum will be weak.”


Hours before Singapore reported its numbers, the International Monetary Fund presented a distinctly glass-half-empty view. The lender upgraded its estimates of global growth on Tuesday but was far from enthusiastic about the outlook. World GDP will contract 4.4 per cent this year, the IMF reckons. That’s terrible, but a bit brighter than the 5.2 per cent slide the fund pencilled in a few months ago. The Organization for Economic Cooperation and Development last month made broadly similar upward nudges to projections.

Don’t take the word of policy wonks in Washington and Paris. Two of the biggest names in global finance are gaining confidence that the pandemic won’t mean the end of the world – even if they see a long path back to growth. Wall Street giants JPMorgan and Citigroup set aside just $US2.87 billion ($4 billion) for loan losses in the third quarter, according to results published on Tuesday, less than half what analysts had expected.

It would be dangerous to think that just because the worst is behind us that policy makers could take their eye off the ball. Things are still awful.

None of this really eases the human tragedy that’s unfolded this year. Coronavirus infections exceeded 38 million this week. More than a million people have lost their lives. Vast swathes of social and commercial activity were shut down in the first half of the year in what’s looking like a flailing effort to suppress infections. Mental illness from stress and isolation has soared.

Extreme poverty is set to rise for the first time in more than two decades, and persistent output losses imply a major setback to living standards versus the pre-pandemic days, the IMF said.

Given this destruction, how did we get to a point where the word “recovery” is even uttered? Not by accident; it’s owed to massive stimulus from central banks and finance ministries.

Both budgets and interest rate-cuts were deployed simultaneously, rapidly and on a huge scale, a refreshing change from the 2007-2009 global financial fiasco. That’s not bad for agencies fashionably thought to be out of ammunition.

It would be dangerous to think that just because the worst is behind us that policy makers could take their eye off the ball. Things are still awful. It’s a measure of diminished expectations that there is exhaling of relief when GDP numbers remain mostly in the negative.

The global economy is in the process of recovering, even if it can’t be said to have recovered. For that small mercy, I am thankful.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.


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