“Square root”-shaped recovery from the COVID crisis: What consequences?

In OECD countries, activity is likely to follow a “square root” shape with the COVID crisis: rapid fall in production, then rapid upturn in production, then low growth due to a loss of potential growth. What are the consequences of this “square root”-shaped profile of activity? OECD GDP will be increasingly lower than it would have been without the COVID crisis; As a result, either corporate earnings will be permanently lower or, like after the subprime crisis, the wage share of GDP will have to fall further; Public finances will be in trouble, once central banks stop monetising fiscal deficits, due to the loss of tax revenues and potential growth, unless there is a further increase in the tax burden; Central banks will be under strong pressure for their monetary policy to keep interest rates even lower than the low growth rate.