FX.co ★ Recovery of global economy from COVID-19 not to be easy

COVID-19 has caused an unprecedented downturn in the global economy, which has already been partially overcome. However, recovery remains weak and unstable. Most likely, this will continue for several years.

However, global trade rose sharply amid a pickup in demand that was logged in many countries despite restrictions.

Financial markets were also able to overcome difficulties, and stock markets in many countries reached pre-crisis levels and even managed to beat them. Despite the near-zero interest rates, the banking and financial systems appear to be stable. Oil prices also advanced after a sharp crash.

In many countries, economic growth has practically stalled or even started to fall. The second wave of the coronavirus could lead to long-term and more serious consequences.

A similar situation has developed even in economies where growth has resumed, for example, in the United States. At first glance, it seems that America has overcome the crisis. Unemployment is falling and employment is rising. However, the unemployment rate remains significantly higher and employment is significantly lower than before the pandemic. Rising long-term unemployment is undercutting a sustainable recovery.

Moreover, the fiscal stimulus in the US is coming to an end, and a new aid package has not been adopted yet. As a result, the growth of consumer spending slowed down. In addition, production investments are declining. In other words, this situation is unlikely to contribute to confident growth.

There are also political uncertainties in the United States due to the upcoming presidential elections. As a result, stock markets are not performing well.

At the same time, in Europe, the situation is even worse. The eurozone economy has been hit hard by the pandemic. The second wave of coronavirus disrupted short-term economic growth. Moreover, deflation is starting now. This speaks of a prolonged economic downturn despite production revival in some countries such as Germany.

The UK continues to solve the Brexit issue. Lingering uncertainty also contributes to a protracted economic downturn, despite a recovery in the service sector.

Perhaps the only country that has a strong economic recovery is China. The virus was defeated along with the restoration of industrial production and services. Many economic indicators now exceed pre-crisis levels. However, China's strong economic performance will not be able to strengthen the global economy.

Governments now have only one option that is to continue aggressive fiscal stimulus in the form of targeted government spending that could stimulate private investment. Otherwise, many countries will face serious economic problems.