Even before the pandemic the global economy was facing a range of potentially devastating tail risks
In February, I warned that any number of foreseeable crises – “white swans” – could trigger a massive global disturbance this year. I noted: “… the US and Iran have already had a military confrontation that will likely soon escalate; China is in the grip of a viral outbreak that could become a global pandemic; cyberwarfare is ongoing; major holders of US treasuries are pursuing diversification strategies; the Democratic presidential primary is exposing rifts in the opposition to Donald Trump and already casting doubt on vote-counting processes; rivalries between the US and four revisionist powers are escalating; and the real-world costs of climate change and other environmental trends are mounting.”
Since February the Covid-19 outbreak in China did indeed explode into a pandemic, vindicating those of us who warned early on that the coronavirus would have severe consequences for the global economy. Owing to massive stimulus policies, the Greater Recession of 2020 has not become a Greater Depression. But the global economy remains fragile and even if a V-shaped recovery from highly depressed output and demand were to occur, it might last for only a quarter or two, given the low level of economic activity.