Global economy

Alex Bryson, David Blanchflower, 21 October 2021

Economic downturns are not as unpredictable as we once thought. There is mounting evidence that the expectations of consumers, workers and employers predict economic downturns, sometimes 12 to 18 months ahead. But we live in exceptional times. The COVID-19 pandemic and its aftermath have sown doubt and uncertainty among consumers and producers and may do so for some time to come. So what’s the economic prognosis? this column argues that expectations data for the US suggest the country is entering recession about now.

Rabah Arezki, Yang Liu, 30 September 2021

Covid-19 has further exposed the growing interdependence between advanced economies and emerging markets. Most of the existing research on cross-border spillovers has focused on the spillover effects from advanced economies to emerging markets. This column shows that spillovers from emerging markets to advanced economies over the past 25 years are about a fifth of those running in the opposite direction, and have increased significantly over time because of the evolving interdependence between these blocks. 

Francesca Caselli, Matilde Faralli, Paolo Manasse, Ugo Panizza, 24 September 2021

Do countries benefit from servicing their debts during times of sovereign defaults? Colombia is typically regarded as the only large Latin American country that did not default in the 1980s, but this column argues that the case of Colombia is more complex than commonly assumed. Although it had to re-profile its debts, high-level political support from the US allowed Colombia to do so outside of the standard framework of an IMF programme. In the short to medium run, Colombia benefited from avoiding an explicit default, but this strategy did not lead to long-term reputational gains.

Luke Bartholomew, Paul Diggle, 21 September 2021

As the global economy recovers from the immediate economic impact of the Covid crisis, attention is increasingly turning to the long-run impact of the shock on productivity. This column identifies several channels – including labour market hysteresis, impaired skill acquisition, belief scarring, an increase in zombie companies, and policy errors – through which the lasting harm will outweigh any positive supply shocks caused by the pandemic. The authors estimate long-term output losses in the order of 3% of global GDP. Scarring will be greater in some economies than others, pointing to the importance of policy in mediating and offsetting these channels. 

Alex Bryson, David Blanchflower, 24 August 2021

When Queen Elizabeth II asked economists why none of them had seen the Great Recession coming, they presented her with a number of reasons but forgot to mention the main one: they hadn’t paid attention to ‘red lights’ that had been flashing in the qualitative survey data from consumers and producers that predicted the downturn. Chief among these was the fear of unemployment which, as this column shows, predicts upticks in unemployment 12 months ahead.

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