The global economy is either recovering quickly or not recovering at all. It depends on who you ask. People with non-furloughed jobs who can work from home and own assets might sense a rebound, but those who lost their jobs or fear unemployment, and those who live in a country with a rising number of coronavirus cases, may tell a different story.

The recovery so far is patchy. For those who like letters to describe economic direction, a K shape is probably best, not a V or W or L. Some things are coming back quickly and others hardly at all.

The number of scheduled flights across the world is still 50 per cent lower than a year ago, for instance. US employment remains more than 7 per cent below February levels. Even in mainland China, retail sales are down on a year ago.

The economic impact of this crisis is falling on the most vulnerable. In emerging markets, the hit to incomes has been greater than in most developed economies. Even in the US, 5 per cent of people are reporting not having enough to eat and 24 per cent of low-income renters are very worried about making payments.

But stockmarkets have risen towards record levels, house prices have soared in many locations and retail sales are climbing. Third-quarter GDP figures may look like impressive rebounds from the second-quarter collapses, but unemployment is rising in some places, businesses are at risk of bankruptcy, and pandemic-related risks are still increasing in many parts of the world.

There is also a clear sectoral divide. Both manufacturing and services are recovering globally, but after a much deeper fall in services activity, the fact that the rebound hasn’t been stronger does not bode well.

Consumer spending on goods has held up, but spending on services lags: more than 60 per cent of US recreation firms have reported a large negative impact on their business.

While the ‘recovery’ in economic data may look good, concerns around the future are growing. Rising unemployment and income inequality will widen political divides and make the world economy more vulnerable to further shocks.

Policy has to respond. Without more packages to support the recovery, the scarring from this crisis will get deeper and the divide between the relative winners and losers will widen.

First published 7 September 2020.

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