Reports: World economy faces tough journey back from crisis

WASHINGTON  — The world economy likely faces a long slog back from the coronavirus crisis.

FILE – In this March 18, 2020, file photo, people are reflected on the electronic board of a securities firm in Tokyo. Japan’s economic growth plunged into recession in the first quarter as the coronavirus pandemic squelched production, exports and spending, and fears are growing worse times may lie ahead, according to a report on Monday, May 18, 2020. (AP Photo/Koji Sasahara, File)

Two reports out Monday predict that global growth will struggle to bounce back from the lockdowns, travel restrictions and business closures meant to contain the pandemic.

IHS Markit said that it expects the world economy to shrink 5.5% this year, triple the damage it sustained in the 2008 financial crisis, and then struggle to regain traction.

“While growth in the hardest hit economies may snap back briefly, the momentum will soon fade,” the financial research firm warned. It expects the U.S. economy to contract 7.3% this year and the collective economy of the 19 European countries that share the euro currency to recoil 8.6%.

Hobbling the rebound, IHS predicts, will be a wave of business bankruptcies and cautious spending by consumers trying to repair their household finances and uneasy about resuming old habits that drive economic growth — shopping, eating out, booking vacations and going to movies.

“Government leaders wanted to err on the side of caution, and, as a result, we basically shut down large parts of the economy,” said Sara Johnson, executive director at IHS Markit. “I suspect we overdid it, but it’s perhaps too soon to second guess.”

Likewise, Deutsche Bank Wealth Management warned Monday that a “hoped-for” rebound in the second half of 2020 won’t be strong enough to undo the damage absorbed in the first, at least among the advanced economies of the United States, Europe and Japan. “We don’t expect developed economies output to be back to pre-crisis levels until 2022,” the report said.

Economies normally bounce back rapidly — registering so-called V-shaped recoveries — from sudden shocks such as natural disasters. But Deutsche Bank notes that the virus is different: Recovering from the pandemic won’t require any of the growth-stimulating rebuilding that follows earthquakes and typhoons.

Many economists say any recovery is likely to be subdued until the virus has been tamed by a vaccine or effective treatments.

“I don’t believe you can have a credible economic recovery or a V-shaped recovery unless you have the pandemic really largely under control,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics.

GSG