Golden Twenties Needn’t Result in 1930s-Type Bust, Berenberg Says

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The global recovery from the pandemic will mirror what are known as the Roaring Twenties after World War I, but according to German bank Berenberg, there is no need for a repeat of the economic collapse that ended in that decade.

Chief economist Holger Schmieding says that “excesses and subsequent corrections are part of life”, but the last twelve years have shown that political decision-makers have learned to deal with crises.

“Neither hyperinflation nor a new global economic crisis appear to be a serious risk as long as policymakers continue to observe the lessons of the 1920s,” Schmieding said in a report. “We see no reason to fear a terrible end comparable to the Great Depression of 1929-1932.”

Boom and bust

The economy in the twenties and the Great Depression

Source: Maddison Historical Data

Schmieding says the pent-up demand will be released in the near future as leisure and travel reopen and spending backed up by excessive savings.

Beyond this boom, he sees an opportunity for a long period of higher growth based on two “big calls”. The long period of balance sheet repair after the collapse of Lehman Brothers Holdings Inc. is over, and productivity growth will accelerate noticeably as the crisis and demographic change drive innovation, he says.

As long as governments address five major challenges – public debt; Resilience against impacts; Education; Pension and entitlement reforms; and climate change – the economy will thrive.

“The chances are good that with just one correction of the garden variety, the twenties will turn out to be golden and not end with an oversized economic catastrophe,” he said. “But this price is only there for those countries that make their political decisions right.”

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