Economic Commentary: Long-Term Growth, Tourism, Bankruptcies

In this Issue:

  • The Pandemic Will Limit Economic Growth For Years To Come
  • Travel and Tourism Prospects
  • Bankruptcies: Calm Before the Storm?

It used to be that something headed upward on a steep path was said to be “going to the moon.” That may be too modest for the present day. There are currently three separate missions surrounding Mars: two in orbit and one (NASA’s Perseverance rover) on the ground. The new benchmark for celestial aspiration is mirrored in the financial markets, where some asset prices have pushed further and further into the stratosphere.

Closer to home, however, other trajectories are getting shallower. Long after vaccination is complete, the pandemic will still be placing downward pressure on the path of economic growth. As much as we’re looking forward to life after COVID-19, the consequences of what we’ve been through will be with us for a long time.

For the past four months, many have been breathing a sigh of relief at the prospect of a post-pandemic future. Vaccination programs are moving forward, and populations of major developed countries are expected to reach high levels of immunity in the second half of this year. Visions of indoor restaurant dining, pleasure trips and concert attendance are dancing in our heads. Life will finally, we hope, get back to normal.

But just as many COVID-19 survivors endure lingering medical difficulties, economies around the world may struggle to regain full health. The pandemic has not only hindered growth over the past year; it has hindered the ability of economies to expand over the much longer term.

Productivity growth chart

Potential economic growth is the combination of labor force growth and productivity growth. Both were moderating prior to the pandemic; aging societies and insufficient investment were to blame. And both will be impaired further in the post-COVID world.

Reopening after the pandemic is not going to happen suddenly, and it is not going to occur at the same time in all places. (As we discussed last week, uneven application of vaccinations is one reason why.) Global surveys suggest workers will take time to regain comfort with returning to crowded surroundings even after high levels of immunity are achieved. So, interactions within and across countries may remain hindered for a while.