Welcome to Thoughts in the Market, I'm Andrew Sheetz, chief cross-asset strategist for

Morgan Stanley.

And I'm Reza Mockertdown, Morgan Stanley's chief economic advisor.

And today on the podcast, we'll be talking about the recovery timeline for Europe post-pandemic

and the resulting impact on markets.

It's Thursday, February 18th at 3pm in London.

Reza's traditional business cycle theory looks at booms and recessions as deviations around

a longer-term trend, but you've been talking lately about this notion of economic scarring,

where recessions are more than deviations, but they're really about longer lasting

impacts on labor, investment, and innovation.

What do you mean by economic scarring?

I think the idea of economic scarring is that recessions are events that leave lasting

marks on the economy.

In a way, recessions pull down and sometimes even bend the long-term trajectory of the economy.

In that sense, just like a bad injury, recessions are long-term scars on the economy.

Let me give you an example.

Euro-area experienced significant scarring after the back-to-back crisis of 2008 and 2011.

By 2014, Euro-area growth had returned to its pre-crisis growth rate.

But even later than that, in 2019, Euro-area output was some 10 percentage points lower

than what it would have been had the two crises had not occurred.

That 10 percentage point is the magnitude of scarring.

When we think about that scarring, that longer-term loss of economic potential,

...