New COVID-19 wave can lead to double-dip recession: QNB

By Backend Office, Desk Reporter
COVID-19 Economic Impact
Representational Image

In its latest weekly economic report, Qatar National Bank (QNB) observed that aggressive policy stimulus and the partial containment of the COVID-19 pandemic in large advanced economies have resulted in a significant reversal of global trends. 

The bank observed that after a steep global depression in the second quarter of 2020, the global economy saw a broad economic stabilization in the following quarter (Q3 2020).

Even though the improvements across the globe are in no way better when compared to the numbers from 2019 (apart from China), the rate of change improved significantly and the positive momentum created optimism and hope.

QNB remarked that the second wave of infections that have now arrived in the US and European nations are triggering another dramatic U-turn for the improving prospects in these large advanced economies.

As these countries employ corrective measures to lengthen the time through which the virus spreads over the winter while flattening the curve of infections before hospitals get overloaded by a bigger surge of severe cases, the hard social distancing norms which accompany these measures will result in de-railing the economic stabilization process that started in the third quarter of 2020 with a ‘double-dip recession’ or ‘stop-and-go’ activity patterns at these large economies.

“This piece dives into three key points about the economic consequences of a ‘second wave’ of severe epidemics in the Euro area and the US, drawing parallels with the ‘first wave’ early in the year,” QNB added in its economic commentary.

Less Uncertainty 

QNB observed that learning from the previous bout of COVID-19 infections has lessened the uncertainty about the virus itself and how to handle it. Authorities are now more prepared with some data suggesting that hospitalization and death rates are diminishing.

Financial support facilities are already at place and can be extended further in the coming months in these countries.

Dampened Side effects 

QNB expects the supply-side effects to be smaller than in the first wave as social distancing norms are a bit more lenient and necessary Work-From-Home infrastructure is already at place.

Better stimulus support 

The bank observes that economic stimulus will likely need to be even more aggressive or generous than in the first lockdown, particularly when it comes to supporting the corporate sector in large advanced economies.