The post-Covid economy may be stronger than the pre-Covid one

Fourteen years ago, in December, 2007, a decade of economic expansion in the US came to an end. The growth period prior to that – which ended in 2001 – lasted 10 years. Officially the recession in the US that followed the financial crisis and collapse of Lehmann Brothers investment bank only lasted about two years. However, we were plagued by relatively weak levels of economic growth – not just in America but around the world, too – for at least 10 years from that point. Then we were hit by the pandemic in early 2020. The prognosis for growth was bleak a year ago, amid lockdowns and stalled businesses. Now it would seem though that in the wake of Covid-19 we might be once again on the brink of a new era of outstanding economic growth. Goldman Sachs expects the UK economy to grow 4.8 per cent next year, the US to grow 3.5 per cent, 4 per cent in Germany and 4.4 per cent in Italy and France. The final three months of 2021 have been a period of increased economic activity despite the spread of the Omicron variant of the coronavirus. In the US, for example, growth forecasts for the fourth quarter are at as high as a 7.5 per cent annualised rate. The country is expected to grow 5.6 per cent this year, which would be the fastest since 1984, according to Reuters. The American economy contracted 3.4 per cent in 2020 by comparison. "The economy was running on all cylinders in the fourth quarter," Diane Swonk, chief economist at Grant Thornton in Chicago told Reuters. On Wall Street, for example, investment bankers brought in hundreds of billions of dollars in fees this year. They are anticipating bumper bonuses. As some of the world’s leading business and economics experts explained on a new podcast series by The National , called PCR: Post Covid-19 Recovery , we are experiencing a fast economic rebound. In the latest World Economic League Table, the Centre for Economics and Business Research says global GDP in 2022 will cross $100 trillion for the first time. In 2020, CEBR forecast that this would not occur until 2024. “There is substantially more momentum going into 2022 than we had previously envisaged,” it said this week. However, Omicron’s effect will show up next month as events and travel are cancelled and there is less spending after the New Year amid increased restrictions and staff shortages. This hit to growth will pass quickly, according to experts. Governments are ready to support the recovery, which should get us through any rough patches like Omicron. For example, the People’s Bank of China has promised to be “proactive” with its policies and Japan has passed a record budget for the next fiscal year. Besides surging Covid-19 cases, another concern to mitigate any optimism has been rising prices for everything including fuel and food. Inflation could dampen growth if it doesn’t abate as soon as many predict it will. These are known risks at least. If the sunnier assessments prove accurate, we should shrug them off by the middle of next year. Given what we have been through over the past two years it would be understandable if the natural response of decision makers would be to remain cautious or even pessimistic. Instead, we could in fact experience outsized economic expansion in 2022 and beyond – far better than what we had before the pandemic and representing a return to levels of growth we saw before the financial crisis. This is partly because of the pandemic not in spite of it. Many chief executives around the world are worried about their own positions, according to a survey by consultancy AlixPartners. Their insecurity is caused by the disruption to a vast range of industries that has been accelerated and they must now adapt to that change far quicker than they expected just a year ago. The jeopardy they are now facing means that dynamic strategies must be embarked upon aggressively. Investment in technology, innovation and the emergence of new business models will spur on the global economy. There will also be an acceleration in the job market. CEBR said in advanced economies “the numbers of engineers and technologists that will be required within 10 years will be roughly double the number that are currently employed”. “Artificial intelligence, robotics, virtual and augmented reality and medical are areas where we expect 300 per cent growth or more” in the UK. As we enter the third year of the pandemic, we are also in the second year of the recovery phase and the “scale of the economic hit from the pandemic in 2020 now seems to have been a little less severe than we had assumed”, CEBR said. If the recovery also proves to be better than expected, it could be a bumper time for more of us than just the bankers.