Silvia Dall'Angelo, senior economist at the international business of Federated Hermes
The Covid-19 crisis is proving sharper and longer-lasting than initially expected. Following the second wave and related restrictions, UK GDP is to contract by at least 10% in 2020, while prospects for recovery next year remain uncertain.
Sharp and protracted hits to activity and employment are typically associated with loss of potential growth, as hysteresis effects settle in.
Notably, the longer workers stay out of a job, the likelier skill losses and mismatches become down the road.
That said, there might be silver linings. For a start, the Covid-19 crisis could trigger a process of creative destruction, boosting productivity.
Indeed, businesses have come up with new, creative and more effective ways to deliver their goods and services, from stepping up the diffusion of technologies for working from home, to strengthening operations to support online shopping.
Also, the crisis has acted as a catalyst to unleash public spending, with the UK leading the way in terms of coordination between monetary and fiscal authorities.
This framework – if successful in responding to the crisis – could be applied to tackle some of the more urgent challenges of our times, notably climate change, as the UK is committed to reduce its net carbon emissions to zero by 2050.