More than a decade after the Global Financial Crisis, the world now faces an even bigger economic shock. The 65th edition of Barclays’ Equity Gilt Study evaluates the medium-to long-term effects of the COVID-19 pandemic on the global economy:
In this chapter, we consider how the unprecedented disruption caused by COVID-19 is likely to lead to long-term shifts in consumer behaviour, corporate decision-making and government policy. Reversing several seemingly ‘irreversible’ trends, we expect countries to diversify global value chains, population agglomeration to decrease and international mobility to wane. Further, we expect to see greater focus on “green” policies, particularly in Europe, as governments pivot towards sustainability. In the new economy, safety and self-reliance could win over cost-efficiency and frictionless movement of goods and people.
The developed world has deployed unprecedented policy measures to cushion the COVID-19 shock, leading to a massive worsening of fiscal profiles. The longer-term consequences of these debts will depend on how policymakers respond; they will have to choose from overt debt reduction policies, such as austerity and taxation, to covert ones, such as financial repression and inflation. We evaluate the debt management choices that the West will face in the decades ahead and the implications of each response.
In this chapter, we evaluate the long-term economic and social challenges facing EM from the COVID-19 shock, and their effects on EM assets and risk premia in the long term. We believe the pandemic will exacerbate existing EM structural vulnerabilities, and create new ones. Leading EM economies are likely to suffer disproportionately from accelerated de-globalization and reduced international mobility, even after the near-term shock of the pandemic has abated.
The COVID-19 pandemic has erased the steady rise in the labor force participation rate that helped sustain the longest expansion in US history. The fallout has been particularly acute on disadvantaged groups such as minorities, younger adults, and less-educated workers. In our view, restoring the vigorous pre-pandemic labour market, and building upon these gains, will require policymakers to reconsider barriers that undermine more inclusive growth.
We are living in an age of historic uncertainty accentuated by COVID-19. The COVID-19 shock is defined by its large size, complexity and nonlinearity and can have powerful second- and third-order effects. We discuss why uncertainty is different from other risks, what its effect on markets have been, and offer a five-step plan for managing it.
In publication since 1956, the Equity Gilt Study provides data, analysis and commentary on long-term asset returns in the UK and US. In addition to the macro discussions, this publication contains a uniquely long and consistent database: the UK data goes back to 1899 and the US data – provided by the Center for Research in Security Prices at the University of Chicago – goes back to 1925.
The 2020 study is available to authorised clients of Barclays Investment Bank. Clients can log in to Barclays Live to read the full report.
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