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Don’t Overestimate the COVID-19 Recovery

Summary:
At this point in the COVID-19 crisis, governments have only one good option: further aggressive fiscal stimulus, complemented by coherent virus-containment strategies. Without such policies, demand and confidence will remain subdued, and global growth will continue to falter well into the future. WASHINGTON, DC – The world economy has risen from the depths of the initial COVID-19 plunge. But the recovery has been tepid, uneven, and fragile – and is likely to remain so for the foreseeable future. Overruling the Rule of Law PS OnPoint Susan Walsh/Pool/AFP via Getty Images The Pandemic’s Complex Cocktail

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At this point in the COVID-19 crisis, governments have only one good option: further aggressive fiscal stimulus, complemented by coherent virus-containment strategies. Without such policies, demand and confidence will remain subdued, and global growth will continue to falter well into the future.

WASHINGTON, DC – The world economy has risen from the depths of the initial COVID-19 plunge. But the recovery has been tepid, uneven, and fragile – and is likely to remain so for the foreseeable future.

Start with the good news. World merchandise trade has rebounded strongly, consistent with indications of a revival in household demand for goods in many economies, even as public-health restrictions and consumer concerns continue to hobble demand for services.

Moreover, financial markets have held up surprisingly well, with stock markets in many countries regaining or even exceeding pre-pandemic levels. Despite near-zero interest rates, banking and financial systems seem largely stable. And consumer and industrial demand has buoyed commodity prices, with even oil prices having recovered somewhat.

But as the latest Brookings-Financial Times Tracking Indexes for the Global Economic Recovery (TIGER) update shows, many economies are experiencing essentially no growth, or are even contracting. With private-sector confidence depleted, and the struggle to contain the virus far from over, the risks of substantial and long-lasting economic scarring are on the rise.

Don’t Overestimate the COVID-19 Recovery

This is true even in the economies that have returned to growth, such as the United States. In some ways, the US seems to have turned the corner. Industrial activity and the labor market have regained some lost...

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