Economic Risks – Llewellyn Consulting – May 2020
Llewellyn Consulting
May 4, 2020
Economic Risks
- Second infection waves hindering normalisation processes
- After initial rebound, recovery traces an ‘accordion-shape’
- Macro policy settings are loosened further
- Government debt reaches unprecedented levels
- High precautionary saving and enduring supply-side damage
- More nationalism, poverty, inequality, and social unrest
OECD: radical uncertainty
- Falls in GDP in Q2 of up to 80% at an annualised rate are to be expected in both the advanced and emerging
- Unemployment rates are surging higher, and inequality and poverty are likely greatly to be exacerbated for some
- CPI inflation has softened and could drop into negative territory in some of the advanced
- Fiscal and monetary policy have been deployed to reduce the amplification and persistence of pandemic’s
- Policy rates have converged around the zero bound, and unconventional monetary initiatives been greatly
- Direct fiscal support of 6% of GDP has been announced, plus loan and guarantee schemes equivalent to 10%-odd of
- G-7 public debt is headed to a record 140% of GDP, but is sustainable as long as interest rates remain
- The first wave of infection has peaked, lockdowns are being eased, and stocks have rallied, but the risk is of
- Perhaps, following a rebound in Q3, the recovery in activity could trace an ‘accordion-like’
- Future levels of real GDP are likely to fall short of their pre- crisis extrapolated trend for an extended.