November 12, 2020
2 mins read

Pandemic To Reshape Global Economy: Moody’s

The global economic recovery over the coming year will be highly dependent on the development and distribution of a coronavirus vaccine, effective pandemic management as long as the virus remains a public health risk, and government policy support, Moody’s Investors Service said on Thursday.

In a new report, the agency’s baseline forecasts assume that difficulty in controlling the virus will hinder the gradual process of recovery in the short term.

However, Moody’s expects pandemic management will continue to improve over time, thereby reducing fear of contagion and allowing for a steady normalization of social and economic activity.

As a result, the virus is expected to become a less important macroeconomic concern throughout 2021 and 2022.

“The Covid-19 shock has triggered extraordinary fiscal policy responses from governments in advanced economies, including the US, Europe and Japan, facilitated by a large expansion of their central bank asset purchase programs,” said Moody’s Vice President-Senior Credit Officer Madhavi Bokil.

“Looking ahead, we expect advanced economy central banks to actively hold down yields across all maturities and to expand asset purchases to include a wider range of assets if the economic backdrop remains difficult. For most emerging market countries, the scope for additional rate cuts is limited and we do not expect emerging market central banks to carry on with quantitative easing measures once the recovery strengthens.”

The economic shock from the pandemic comes as the world is grappling with multiple challenges ranging from climate risks, a reassessment of the merits of globalization and increased social disaffection. Moody’s said the pandemic will likely usher in new secular shifts that will reshape the global economy, politics and international institutional frameworks.

These shifts, according to the agency, will be the most visible in four ways: an increase in populism and inward-looking policies in the event of a jobless recovery or a recovery that increases inequality, geopolitical realignment, a policy push for a “greener” economy, and a technological transformation that could make a large number of jobs obsolete.

Geopolitical and trade risks will remain a key focus in the year ahead as the relationship between the world’s two largest economies, the US and China has deteriorated.

The agency does not believe that the Biden administration would differ materially from the current administration with regard to these issues. Decoupling of the Chinese economy from the US is likely in the areas of trade, technology and investment. For other countries, the pandemic shock has also led to both economic and national security concerns about supply-chain vulnerabilities and economic dependencies.

The emphasis of various governments on shoring up domestic productive capacities can also be viewed as an attempt to reduce their codependence on the global economy, Moody’s said.

Also Read: INDIA: G20 Summit To Boost Global Economy

Also Read: India Enters First Ever Recession: Reserve Bank

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