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Pleasant Recession, Unpleasant Recovery

Weak pent‐up demand will likely prevent a post‐COVID boom.

Nikolaj Schmidt Chief International Economist
T. Rowe Price,  March 2021

Key Insights

  • During normal recessions, pent‐up demand for capital expenditure and durables build as the economy goes through a downturn.

  • In my view, huge fiscal stimulus means there is less pent‐up demand this time, so the post‐coronavirus fiscal consolidation is going to feel rough.

  • However, household and corporate balance sheets are likely to expand, meaning that a repeat of the stagnation that followed the global financial crisis is unlikely.


Last year was nothing if not remarkable. The coronavirus pandemic led to an implosion of economic activity before monetary and fiscal stimulus provided the foundation for a recovery unlike anything we have ever seen. From an economist’s perspective, one insight stands out: Judging from the public sector balance sheet, it appears there was a deep recession last year; judging from the private sector balance sheet, however, 2020 looks more like a boom year than a recession.

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