Global rebound interrupted as uncertainty lingers
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Global rebound interrupted as uncertainty lingers

In this podcast, Brian Blackstone chats to Credit Suisse chief economist James Sweeney and chief European economist Neville Hill about the global economy's prospects heading into the autumn and beyond.

Virus-related restrictions influence economic activity

A summertime pick-up in global economic activity–after deep contractions at the height of the COVID-19 pandemic in the second quarter–could be followed by a pause this autumn, as many major economies re-impose virus-related restrictions.

"The bounce in economic activity that we've had for the last three or four months is going to start to run into the sand as we no longer see restrictions get eased over the next few months," Hill said, referring to Europe.

The same broad outlook applies the global economy, Sweeney said. After a severe drop in production and other indicators during April and May, some economic recovery was inevitable in the summer months.

The impact on financial markets

"Markets have been benefiting from a lot of positive news on this industrial production rebound. The bad news is after September–from a very high short-term growth rate–you're going to have a falling growth rate and often that does matter for sentiment and for people's perceptions on the economy."

The impact for businesses

For businesses, "you have to understand that these are still abnormal times, distancing measures are still widespread and the amount of demand in the economy is very dependent on policy support," Sweeney added. As long as this is the case, the unemployment rate will remain higher than usual and "there's going to be some collateral damage."

Government spending to support economic recovery or cause inflation?

The world economy has managed to stay afloat thanks in large part to massive spending by governments to offset some of the loss of income by households. Meanwhile, central banks, especially in the US and Europe, have purchased large amounts of government bonds to hold down interest rates and make it easier to borrow and spend.

Although such vast money generation would have once been seen as a recipe for high inflation, Hill said that given the weak state of the economy such risks are minimal for now.

COVID economic recovery

Global economy recovery will depend on how pandemic evolves

Ultimately, the global economy will depend critically on how the COVID-19 pandemic evolves, making any eventual vaccine to combat the virus central to the outlook.

"If we don't have a vaccine and we're just continuing these mitigation measures for a very long time, yes we'll still have a recovery but it's going to distort the global economy in all sorts of ways" by fomenting concerns about high inflation and debt dynamics, Sweeney said.

"Hopefully that is an ugly scenario that we won't have to worry about."