The global economy has faced a severe and synchronous recession during 2020, as a result of the COVID-19 pandemic crisis and accompanying containment measures across the world. The shock on economic activity affected both the demand and the supply channels, while its magnitude varied across countries, reaching up to double-digit annual percentage losses of GDP for service-oriented economies, including those with significant exposure to tourism activity. The world’s annual real GDP declined by 3.3% in 2020, while the annual contraction among the advanced economies reached 4.7%. The annual losses of real income for the Euro Area members exceeded on average 6.6%.

The policy response to the pandemic-driven global economic crisis has been unprecedented, both from a monetary as well as from a fiscal perspective. The accommodating global monetary stance continued to provide abundant liquidity at historically low cost for economic agents. At the same time, governments implemented a highly sizable set of fiscal stimulus measures. Both the fiscal and monetary policies have been coordinated to cushion the negative effects on economic activity, employment, credit flows, while provide for a necessary social safety net. All in all, the IMF estimates (according to its World Economic Outlook, April 2021) that the recession size could have been three times as large without the extraordinary policy measures.

From a monetary policy perspective, central banks have taken unprecedented policy actions to further ease monetary policy across the globe, provide liquidity to funding markets, and support credit flow. Advanced economies’ central banks have expanded their balance sheets to historically large magnitudes, including by expanding quantitative easing programs and other non-conventional measures of monetary policy. Emerging market central banks have initiated asset purchases programs, while used foreign exchange reserves to mitigate stress in currency and local bond markets.

From a fiscal policy perspective, both emerging and advanced economies enacted extraordinary packages of fiscal stimulus, ranging from up to 5% of GDP for the former to at least 5% of GDP for the latter. Fiscal support, including additional spending measures as well as foregone revenue through tax relief measures, reached two-digit percentage points of annual GDP for several G7 economies like the US, Canada, Australia, the UK and Germany. At the level of the European Union, policy response was also imminent and quite significant, through the activation of the Resilience and Recovery Fund and the expansion of the size of the Multi-Annual Financial Framework 2021-2027, which essentially doubled the annual budget of the EU from 1% of GDP to more than 2%.

Following gradual but systematic progress on the vaccination front worldwide, as well as the sizable policy responses, the prospects for global economic recovery already starting in 2021 seem realistic. The IMF forecasts a global growth rate of up to 6.0% in 2021, followed by further grow by 4.4% in 2022. It is noteworthy that despite the significant shock on global economic activity, there has not been a permanent disruption on global trade, while commodity prices have recovered and follow a strongly increasing trend.

The short-term economic prospects are therefore quite positive. However, it cannot be taken for granted that the health problem has been tamed and that economic recovery will be linear and straightforward. The forecasted recovery path entails several downside risks, not least of which relating to the epidemiological trends, that is, the pace of gradual, yet non-linear retraction of the pandemic threat. Other concerns relate to rising public and private debt burdens, high asset valuations in relation to fundamentals, policy interventions close to exhausting their potential capacity, and possible side effects from long-lasting periods of negative interest rates, not least of which on saving rates.

Rising uncertainty has been one of the main accompanying features of the pandemic crisis. As the recovery prospects materialize as of 2021 and uncertainty dissipates, several key questions emerge for policy makers and economic challenges in the post-pandemic era. One crucial element is what are the short-term and long-term effects of the several stimulus packages across the world and most importantly what will be the effects from the gradual tightening of the currently extraordinarily loose fiscal and monetary stance. Another major concern is to what extent there are risks for global imbalances to intensify, namely for the gap between rich and poor countries or between regions within countries to widen. Yet another important element of analysis has to do with inflation expectations and explaining whether they will remain persistently low or gradually start picking up and when this is likely to happen, due to the vast amounts of liquidity that are channeled in the economic system.

Despite the synchronous character of the pandemic crisis, the magnitude of the shock differs significantly across countries, regions, as well as sectors of economic activity. In relation to the latter, there have been sectors which have witnessed even an increase in their economic activity during the pandemic era, such as pharmaceuticals or digital service providers. Similarly, the evolution and management of the pandemic crisis have not been the same globally, nor so looks the path of envisaged recovery; some countries are already closer to the return to “normalcy”, while others are still in a considerably more challenging situation.

The pandemic shock, apart from a severe economic crisis, has also been an opportunity for structural transformation in a number of fronts. Indicatively, the crisis has accelerated technological developments, has promoted digital transformation in both private and public sector units, has affected consumption habits and types of employment relations, while has triggered synergies to pool private and public funds towards investment programs with ESG orientation. The interconnection of economic sectors in the global markets is changing, but not in a manner that is damaging the global productive system.

There is no doubt that the end of the health crisis will be followed by a steep increase in global demand. However, its impact will not be even. Some sectors and sub-sectors will decline sharply, whereas others will rapidly grow. Experience from previous crises which were followed by periods of high growth, suggests that this dynamic will be determined by two factors: the developments in productivity and job creation. These two factors seem to leave room for optimism, especially following the digitalization explosion which was triggered by the pandemic.

At the level of the European Union, the pandemic crisis can be seen as an opportunity to promote further steps towards higher fiscal coordination, larger role for the EU budget and further deepening of monetary union institutions. Governments, firms, and households will be challenged to manage very high levels of debt, maintain their credibility and markets’ confidence, and at the same time increase their income in the medium-term in a sustainable and inclusive manner, at a faster pace than their debt service obligations.

In such a global context, Greece has been hit hard by two major crises within the last decade or so, which led to significant output loss and price adjustment. Among the key challenges that the Greek economy is facing, one may highlight the low labour force participation rate and low level of physical capital, particularly related to businesses’ fixed investments. In the immediate few years after the pandemic, Greece can significantly benefit from the global recovery, low financing costs, as well as an underlying dynamic to bridge the production gap, lowering unemployment and attracting investments. In the medium and long run, Greece can achieve a higher, sustainable, and inclusive growth path conditional upon systematic implementation of productivity boosting policy reforms, as those described in the 2020 Growth Plan report by the Pissarides Committee.

Being a member of one of the largest currency zones and free trade areas of today’s world, Greece faces an opportunity to become a much more extrovert economy and a globally attractive destination for long-term investment in the coming decades. And it is only under such a transformation that the Greek economy get on a path of prosperity and avoid returning to a low trajectory, or even a new crisis after the immediate recovery of the first years.