Coronavirus: how the massive pandemic debt bill has ‘reshaped the global economy for good’

Governments have offered unprecedented support for companies during the pandemic, pushing fiscal deficits to record highs, says the Economist Intelligence Unit

But with low growth, high public debt and declining populations in rich countries becoming the norm, paying back the massive stimulus will be a daunting task

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The coronavirus pandemic has seen unprecedented stimulus measures, driving up public debt to record levels. Photo: AP

Published: 5:31pm, 21 May 2021Updated: 5:31pm, 21 May 2021

Governments will prop up economies for years to come following the coronavirus pandemic, inflating fiscal deficits to record-high levels without a “return to normal in the economic, political and social spheres”.

That is the conclusion of a new report by the Economist Intelligence Unit (EIU), which says the pandemic has “reshaped the global economic landscape for good”, with low growth, high public debt and declining populations in rich countries becoming the norm.

The Organisation for Economic Cooperation and Development on Thursday said provisional estimates showed gross domestic product (GDP) growth among the bloc’s 37 countries had slowed to 0.3 per cent in the first quarter of the year, down from 1 per cent in the previous quarter due new lockdowns and restrictions.

The stimulus-driven post-pandemic world will see governments go beyond normal Keynesian economics, where government intervention via fiscal spending is used to stabilise economies, and might require more drastic reforms to promote productivity, especially among inefficient firms, said the report titled “How the pandemic changed the global economy”.

“Ultra-low interest rates allow this cycle to continue virtually indefinitely, creating further incentives for looser monetary policy to prop up so-called zombie firms, which would not survive without government support,” EIU Asia analyst Waqas Adenwala said.