The Post-Pandemic Economy’s Barriers to Growth
The COVID-19 pandemic could not have come at a worse time for the global economy. If history is any guide, the current period of deglobalization, public indebtedness, weakening growth, and the expanding economic role of governments does not bode well for sustainable GDP growth.
NEW YORK – As the world grapples with the COVID-19 pandemic and its economic fallout, it is time to start thinking about the potential barriers to global growth in the post-pandemic era. Governments have ballooned as a result of the crisis, and it will be the state’s job to shepherd the economy toward recovery as the private sector’s contribution to GDP will shrink.
At the same time, major industries that have become more concentrated – particularly in the technology sector – will experience increased regulatory pressure, potentially leading to breakups. The broad trend toward deglobalization will accelerate, undermining trade, capital flows, immigration, and the spread of ideas. The multilateral institutions that have governed the global economy for 75 years will continue to be sidelined.
Against this background, there will be five major barriers to growth in the months and years ahead. First, government balance sheets will get even bigger than they already are, with both fiscal deficits and public debt continuing to expand in monetary terms. Early in 2020, total global debt as a share of GDP had already reached 322% – a new milestone.