How to avoid a coronavirus debt crisis? Issue a new type of government bonds linked to GDP

The range of forecasts about how the coronavirus will affect the world economy is so wide that you question their usefulness. For example, the IMF predicts that the UK will contract 7.5% in 2020, while the UK’s own Office for Budget Responsibility thinks it will be 13%. Meanwhile the OECD believes that each month major economies spend in lockdown will remove two percentage points from their annual GDP growth.

Issuing a wide range of predictions is bound to make one forecaster get it right, I suppose. Maybe they ought to learn from the 1665 plague of London, where Daniel Defoe noted that all predictors, astrologers, fortune tellers and “cunning men” did disappear from the streets. It’s tempting to think they all realised their professions had nothing useful or optimistic to report at the time.

Yet if we cut through today’s forecasts, two things appear certain. First, the deeper the recession, the longer it will take to recover. It’s basic mathematics that a recession of 10% in 2020 will require 11.1% growth in 2021 for GDP to return to its pre-coronavirus level.

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Πηγή: theconversation.com