When 2020 began, optimism was in the air.

Allianz economists had forecast that the worst might be over for the global economy due to the end of the trade and industrial recession. They had seen global economic growth this year at a sluggish but steady 3 percent.

Six months later, all the projections are out the window, with the economy upended by the Covid-19 pandemic. While some countries are picking up the pieces in the aftermath of the pandemic, others are struggling to contain the outbreak.

Even after months of the carnage, coronavirus is yet to decisively reveal its cost - both human and economic.

Although it’s hard to predict the exact cost just yet, Allianz economists expect the global economy to contract by a sharp 4.7 percent this year, rebounding in 2021 as the situation comes under control.

In a recent report, they provide a quick snapshot of what the world can expect in the medium term...

When coronavirus hit, many countries went into lockdown mode to arrest the spread of the virus, bringing normal life to a standstill. Businesses and shops closed, services were hit and trade stalled.

Since April, however, the global economy has gone back to operating at 70-80 percent capacity. Resuming full capacity is not seen in 2020, say Allianz economists. “We expect this situation to persist until the fourth quarter of 2020, albeit to a lower extent, due to targeted lockdowns to combat new outbreaks and prolonged sanitary restrictions,” they write in the report, titled ‘Coping with Covid-19 in Differing Ways’.

A return for the global economy to the pre-crisis level is possible only at the end of 2021. Next year, the economy is expected to grow by 4.8 percent, just about gaining back what it lost, they say.

Of course, a lot depends on how the dreaded ‘second wave’ plays out and how it is managed. “Hot spots include Brazil, Mexico, the U.S, India, Indonesia, the UK and South Africa, countries that are particularly at risk of renewed outbreaks and false restarts,” the economists write.

Europe could struggle longer. This year, the region’s economy is forecast to shrink by a huge 9 percent. Only partial recovery of 6 percent is expected in 2021. Not surprisingly, the biggest laggards would be Italy, Spain and France, the countries in Europe worst hit by the virus.

For global trade, the wait will be still longer. According to the economists, global trade is not expected to be restored to pre-crisis levels before 2023 as international flows in the services sector will remain impaired for a while.

In 2020, global trade is expected to contract by 15 percent in volume. It could recover by 8 percent in 2021 and a further 4.1 percent in 2022. However, each country and each industry will feel the aftermath differently. Service-oriented industries will take more time to recover than goods. For example, travel and transportation services is unlikely to see a revival before 2023 but trade in goods could go back to pre-pandemic levels by the end of 2022.

The economists see the energy sector being hit the hardest with export losses of $733 billion. 

Of course, the crisis will come to an end at some point. However, its legacy will linger for a while as the full effects of the pandemic play out.

In the medium term, insolvencies will rise, the jobs market will be under pressure, social and political risks will deteriorate and production capacities will suffer, say the economists.

The financial markets will also be rather sensitive to policy announcements. So high volatility can be expected, they warn.

For a more detailed look into the forecast for the economy this year, click here for the ‘Coping with Covid in Differing Ways’ report.