Goldman Sachs’ Predictions for a Post-COVID Economy

The novel coronavirus has caused widespread social and financial disruption since it was declared a global pandemic in March. 

In the weeks since, hundreds of millions of people have begun to practice physical distancing from one another, resulting in massive job losses and changes to the global economy.

As the crisis continues, it is clear that COVID-19 will permanently affect our lives in ways that we might not yet be able to predict. Others, however, are already becoming obvious. 

The global oil industry has already been hit hard by both the outbreak and the price war between Saudi Arabia and other players. 

“The global economy is a complex physical system with physical frictions, and energy sits near the top of that complexity,” said Jeff Currie, a Goldman Sachs economist, in a note to clients on Monday. “It is impossible to shut down that much demand without large and persistent ramifications to supply.“ 

Currie went on to explain the challenges the oil industry is facing as COVID-19 forces suppliers to innovate in uncertain circumstances. He also explored the other long-term implications of the pandemic, lending insight into how Goldman Sachs imagines a post-COVID world.

Among other changes, Currie noted that the debate around global climate change would certainly be impacted by the pandemic. 

“The silver lining of the coronacrisis is that the virtual shutdown of key carbon industries […] is likely to cause carbon emissions to fall this year, with initial data from China pointing to a c.20%+ fall during the peak of the shutdown,” Currie said. 

Over the last few months, reports have already shown dropping global pollution levels and increasing ecological resilience. Unfortunately, as low oil prices force cuts to supply, it grows increasingly likely that surging demand after the crisis will produce inflation. 

In addition to market and business changes, we are also seeing changes in the way people live in their communities. While we initially expected to work from home and physical distancing to be a short-term endeavor, experts now wonder if our way of life might be permanently altered by these temporary practices. 

“People are adapting to a more local existence and living off more sustainable activities, consuming less globally-produced fresh food, producing less waste with a more conservative approach to consumption, all of which may have lasting impacts on demand,” Currie added in his letter.

After the crisis calms, it is very likely that people will immediately seek to return to life as they knew it. However, Currie predicts that low energy supplies caused by a temporary drop in demand will quickly transform into high prices after the pandemic ceases. 

As the industry attempts to recover, it is likely that the global push for lowered carbon emissions and carbon alternatives will restrict investments in oil and slow the industry’s recovery.

Source: Yahoo Finance

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