We all imagine how economics in the Post-COVID-19 world will be? I have been researching this, and I found this report from Hutchins Centre. This report helps to interpret economic models during this time, and it will show you what the economists are thinking, and how this may play out.
Moreover, this can guide you to realise what the recovery may look like, and then you can consider what effect it will have to you and your business.
Analysts from Hutchins Center on Fiscal and Monetary Policy at BROOKINGS are using shorthand when discussing the shape of the recovery: Z-shaped, V-shaped, U-shaped, W-shaped, L-shaped, and even the Nike Swoosh. They explain what these models mean, and which one of these appears most likely.
What could the recovery look like?
Most optimistic: The Z
The economy suffers a downturn during the pandemic, but then bounces back up above the level it would have been in a pre-pandemic baseline, as pent-up demand creates a temporary boom. In this scenario, a good part of the GDP foregone during lockdowns—the shopping we didn’t do, the restaurant meals we didn’t enjoy, trips we didn’t take—was simply delayed and is made up once the risk from the pandemic passes.
Still very optimistic: The V
The economy permanently loses the production that would have occurred absent the pandemic, but very quickly returns to its pre-pandemic baseline once social distancing is lifted. Trips not taken, restaurant meals not purchased, and concerts not attended are forgone, rather than delayed, but once life returns to normal, everything is just as it would have been before.
Somewhat pessimistic, and probably more likely: The U or the Nike Swoosh
The effects of the pandemic on economic activity last well beyond the end of the social distancing, and GDP recovers slowly. Even after the health risks recede, the economy still does not quickly go back to where it would have been, though it does get there eventually.
This basic story has many possible shapes. In the U-shape, the level of GDP stays low for a while but then recovers back to baseline slowly.
In the Swoosh, borrowed from Nike’s logo, the economy starts to bounce back sharply, as restrictions are lifted and economic activity increases, but consumers, businesses, and state and local governments are still hesitant to spend, and it takes a long while for the economy to get back to the pre-pandemic trajectory.
Also possible: The W
If the response to the pandemic is the first round of openings that is followed by a surge in COVID-19 cases and another round of closures in the fall, the recovery could be W-shaped.
But then the question will be, what does the recovery from the second (or third, if we do that multiple times) downturn look like?
Most pessimistic: The L
The pandemic has a permanent effect on GDP. Lost investment during the crisis, a rethinking of global value chains, a permanent change to fiscal policy, and a slowdown in productivity growth all have the potential to cause the trajectory of GDP to be lower than it otherwise would. This is basically what the recovery from the Great Recession looked like.
To read more on this article: https://www.brookings.edu/blog/up-front/2020/05/04/the-abcs-of-the-post-covid-economic-recovery/
From my point of view, I think that the W model may be the most likely model for Thailand. Initially, the economy will be stimulated with the easing of restrictions, and as has been predicted, there will likely be the second wave of infection that will impact the economy again. At that time, the government will need to bring back some measures to control the situation and it will slow the economy once again.
There will be no quick recovery. However, the recovery will be faster than the previous economic downturns as the cause of the economic downturn has been the pandemic. A key question is, whether damage to the economy’s capacity to produce goods and services will be long-lasting?
Businesses today need to be planning, if they aren't already, for the return to work as the restrictions are eased. They will also need to consider the future in this planning.
Stay tuned for further discussions.
We would welcome any comments.
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