Patrik Schowitz

Coronavirus recovery: vaccine-boosted economy is still coming to grips with long-term effects of pandemic

While short-term optimism surges, questions remain over how much the pandemic has scarred the global economy and constrained future growth potential

It is hard not to be concerned about the impact of high debt levels on inflation and economic growth, even as some economists challenge orthodox views on debt

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Global market sentiment has been buoyed by the news of several promising candidates for vaccines against Covid-19, but this short-term optimism masks deeper concerns about the long-term effects of the pandemic and the policies governments have enacted to mitigate its damage. Photo: Reuters

Patrik Schowitz

Published: 10:00pm, 27 Nov 2020Updated: 3:12am, 28 Nov 2020

Buoyant stock markets are ignoring near-term warning signals on the pandemic resurgence and instead focusing on upbeat Covid-19 vaccine expectations. While financial markets’ resilience has been remarkable in the short run, what about the long-run, real-world economic legacy of the pandemic?

Most important, perhaps, is how much the pandemic has carved into long-term economic growth. The main worry concerns so-called economic scarring or constraining future growth potential.

For instance, this could mean households and firms emerging from the pandemic are more cautious in their spending and consumption behaviour as well as possibly loaded down with debt. As a result, they will be prone to saving more and investing less. Further, some sectors of the economy hit hard by the pandemic may never fully recover with, for example, a good chunk of business travel likely forever replaced by video meetings.

Workers who lost their jobs in those hard-hit areas may take a long time to find new careers, and their livelihoods might be permanently damaged. Even workers in other economic areas might become less employable over time if they remain unemployed for too long.

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Set against these negatives, there is the potentially positive impact of more rapid adoption of technological advances. The same video-calling technology hurting the travel business is making many peoples’ working lives more efficient, allowing them to collaborate remotely and do more work in a given day.