The post-pandemic global economy wound not the like the one before the coronavirus hit, said EIU recently.
To tackle the outbreak, developed countries have unleashed record-high amounts of fiscal stimulus, pushing public-debt ratios to unprecedented levels, EIU noted.
Meanwhile, long-term growth prospects are grim, raising questions about the sustainability of such high debt levels and the implications of the current situation for economies around the world, EIU added.
A new report released by the organisation highlights key forecasts for the post-pandemic global economy, looking at what is next for labour markets, taxes, fiscal sustainability, monetary policy, as well as long-term growth and key risks.
These predictions include:
- Governments have offered unprecedented levels of support to otherwise non-viable, unproductive firms. Withdrawing these mechanisms would be politically problematic.
- Consequently, most governments will prefer a scenario of low productivity growth, high debt overhang and underinvestment.
- The risk of a large section of the population being subject to prolonged unemployment will pressure governments to reform labour markets.
- Governments will likely bring forward measures to enhance social welfare and job security for permanent employees and temporary contract workers.
- The pandemic has increased fiscal deficits to record-high levels, raising questions about how current taxation systems may have to change.
- To replenish their coffers, governments are likely to adopt capital gains tax or property taxes, which could also address the growing issue of inequality.
- Taxing polluting industries is another option; this could help governments to reach their goal of reducing carbon emissions and boost their political-approval ratings.
- Tackling the public-debt pile-ups post-pandemic will be a daunting task across the developed world.
- In developed economies, the debate around debt sustainability will increasingly focus on servicing costs, rather than debt stocks.
- Central banks are shifting focus from independent inflation-targeting strategies to implicit, and sometimes explicit, support for fiscal policy.
- This new interpretation of central bank mandates will lead to greater scrutiny of central banks and, potentially, provoke a political backlash.
- Unconventional monetary policies, including quantitative easing (QE), will remain a feature of advanced economies for several years, at least.
- If monetary stimulus is unwound early, for instance in response to a spike in inflation, and interest rates were to rise, then worrying public-debt pile ups would result.
- In coming decades, rich countries will witness a decline in their populations and, consequently, in GDP; they will consequently focus on maintaining high GDP per head.