We’re all looking forward to things returning to normal. Which would be great for our lives, but not so much for the economy – because normal wasn’t up to much.
In the UK, US and eurozone, industrial production was declining in the months even before the pandemic struck. Which reflected a longer-term trend for stagnation. In the UK, for example, productivity barely grew between 2008 and early 2020 with the result that real wages before the pandemic were actually lower than 12 years’ previously. We entered the pandemic with negative real interest rates around the world precisely because central bankers were desperate to support ailing economies.
Of course, when the pandemic allows activity to return to normal there’ll be a bounce in activity as pent-up demand is released. But this might just be a blip upwards. Why should the pre-pandemic trend of near-stagnation be altered?