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Largest economic slump in history is different to any other recession, but short term recovery likely to be robust

Posted by Warwick Business School at 16 February 2021, 23:57 CET |
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Expert comment from Warwick Business School: Dr Ivan Petrella, Associate Professor of Economics at Warwick Business School, said:

"It is no surprise to see the ONS confirm that the contraction in economic activity in 2020 was the largest in UK history. That is in line with what has happened internationally.

"This slump has been exceptional, not only because it is the largest in history, but because it is very different in nature than any other recession. It is important we keep this in mind when we think about the most likely path to recovery this year.

"Whereas free movement is often associated with economic growth, the key driver of economic activity this year is to be found in policies imposing severe limitations on movement to contain the virus.

"While the indicators suggest that we will see the economy continue to contract during the first quarter of this year, the rollout of the vaccination programme means we can now foresee a return to normal and economic recovery.

"That recovery is likely to be quite robust in the short run, which reflects in part the pent-up demand in many sectors of the economy that were most affected by lockdown.

"However, looking beyond the next couple of quarters, a great deal of uncertainty remains. Many business and jobs will not be there when the economy picks up again. Appropriate macroeconomic policies from the government will be key in making sure that the recovery will be sustained."

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