Golden Twenties Needn’t Lead to 1930s-Style Bust, Berenberg Says

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The global bounce-back from the pandemic will echo the so-called Roaring Twenties after the First World War, but there’s no need for a repeat of the economic collapse that ended that decade, according to German bank Berenberg.

Chief economist Holger Schmieding says that while “excesses and subsequent corrections are part of life,” the past dozen years have shown that policy makers have learned how to cope with crises.

“Neither hyperinflation nor a new Great Depression seem to be a serious risk as long as policy makers continue to heed the lessons of the 1920s,” Schmieding said in a report. “We see no reason to fear an horrific end comparable to the Great Depression of 1929-1932.”

Golden Twenties Needn’t Lead to 1930s-Style Bust, Berenberg Says

Schmieding says the immediate future will see a release of pent-up demand as leisure and travel reopen, with spending bolstered by excess savings.

Beyond that boom, he sees a chance for a long phase of higher growth, based on two “big calls.” The long period of balance-sheet repair that followed the collapse of Lehman Brothers Holdings Inc. is over, and productivity growth will accelerate noticeably as the crisis and demographic change spur innovation, he says.

As long as governments deal with five major challenges -- public debt; resilience against shocks; education; pension and entitlement reforms; and climate change -- the economy will thrive.

“Chances are that the twenties may actually turn out to be golden with just a garden variety correction, rather than an outsized economic catastrophe at the end,” he said. “But this prize is only there for those countries that get their policy choices right.”

©2021 Bloomberg L.P.

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