Pandemic’s economic hit will be here ‘for a long time’ even if a vaccine is approved, economist says
While markets reacted positively this week to promising news of potential coronavirus vaccines in development, a top economist warned that the economic hit from the pandemic will be here for a long time.
A large number of small businesses that closed in March — when restrictions around social movements went into effect — are not going to reopen even when the situation improves, according to Raghuram Rajan, a professor of finance at the University of Chicago’s Booth School of Business.
“I think the hit is going to be with us for a long time,” Rajan, who was also the former governor at India’s central bank, told CNBC’s “Street Signs Asia” on Wednesday.
“As this goes on, more and more businesses find that a long period without revenue, but high cost, implies that they simply don’t have a chance, and they’re closing down,” he added.
“You don’t get a full economy back until there is greater confidence for people to mingle, until the high-contact services like restaurants, travel, tourism – all those can open up again. Till then, you’re at a 95% economy,” Rajan said, adding that countries need to now start thinking about providing long-term support to affected sectors.
Experts have previously warned that the pandemic could lead to more protectionism around the world as countries attempt to safeguard their domestic industries.
For his part, Rajan said that a rise in protectionism will further delay economic recovery.
“A world which has strong protectionism is going to be a world that recovers much more slowly, and much of the damage is going to be done in the countries that are dependent most on commodity exports,” he said, adding it would also affect many poor developing countries as well the emerging markets.
Reference: CNBC
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