Despite recovery in Global GDP, we’re still in Deep Waters

Based on current trends, the world economy is set to benefit from a boost in activity. However, experts think that this boost will be short lived and it cannot be counted as a step towards economic recovery in the long run.

If we take a look at current data, the global GDP is already rising. But this surge in economic activity is not stable. It can be described as patchy at best since there are so many factors to consider throughout the globe. We can assume that economic uncertainty will only truly go away once we have a vaccine for COVID-19.

In H1, the global GDP shrunk by 9% and even after a strong comeback in Q-3 of 2020, we can still expect global economic growth to shrink by -ve 4.4%.

The data that we have right now suggests that a majority of the GDP fall in Q-2 will be countered in Q-3. However, when observed on an individual level, it becomes apparent that things aren’t as smooth as they seem. In European countries, the economic trends seem to be doing well. South Korea has also seen a positive boost in its economy.

But the retailing sector is still struggling. The US, UK, Portugal, and Spain have been suffering from trouble in their retail sector. Tourism based economies such as Thailand have also been facing a decline in their retail sector.

The Current Economic Recovery is set to Lose its Pace

We saw a strong comeback in the beginning of Q-3, but the speed of this recovery is set to slow down. This will be thanks to the fact that a lot of governmental support systems will begin dying out. Also, we can expect a number of companies to restructure their workforce.

Until we have a definite cure for COVID-19, the fear of infection will remain. And this will have a negative impact on business activity. Consumer confidence will go down as confidence in businesses will not be able to recover. Investments will be fewer and progress will remain slow. All of this will have a negative impact on economic activity.

Not everything is grim, we can expect the worldwide economy to go back to pre-pandemic size by the start of 2021.

Trade will Recover, but not without Challenges

The pandemic had a major impact on international trade. And while the pandemic is starting to get under control, the challenges that came with it still remain.

Even before the global crisis hit, global trade had been experiencing decline in its growth as supply chains were being restructured. Experts believe that this decline will increase as governments will continue to come up with ways to further safeguard trade activities.

The crisis’ effect on trade is really similar to the impact of 2008-9’s Financial Crisis. Currently, global trade is in an uncertain position. There are some signs that paint a positive image. However, experts warn that these signs cannot guarantee sustainable recovery right now.

Protectionism

Protectionism was hindering global trade before the pandemic. And it will only continue to do so as governments across the world will continue to try and restrict trade. This is bad news as it will hinder trade recovery as well. The recent dispute between the USA and China is a classic example of how protectionism has been damaging global trade.

This, along with factor such as firms trying to play safe will slow down global trade. Restructuring is always disruptive and when done on a global scale, it can take plenty of time.