Kenneth Rogoff thinks that it was an appropriate move to increase debts levels to sustain the economy during the pandemic. He does not see the global economy back to the 2019 levels for at least the next five years. Goldman Sachs’ Jan Hatzius agrees and does not see debt crisis brewing in the US, UK or Japan either.
Rogoff thinks the markets are wrong in not seeing the US inflation or interest rates higher in 5 years but agrees the pandemic shock will be deflationary in the short run
He states a possibility that China can only grow 3% pa for the next decade and predicts many frontier and EMs may default.
Hatzius agrees “EMs are under a lot of pressure depending partly on how bad the virus gets for them and partly from the hit they take from other economies. EMs are very vulnerable to the global economic cycle either because they are resource-dependent or manufacturing dependent”.
Hatzius deems the US is unlikely to move towards negative rates. According to Rogoff, the option of even looser monetary policy should be saved for a worsening of the pandemic or another crisis (i.e. a Cyber War).
University of Pennsylvania’s David Skeel believes bankruptcies can surpass the levels of the ‘Great Recession’ and particularly worrying is the mass liquidation of SME unlike in 2008.
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