BUCKLE UP

Reviving economy will be a long, hard road

Navigating between economy and lives a terrible moral choice.

In Summary
  • For example, it will be long before we see shoppers flock malls again.
  • Moreover, hundreds of millions of workers will not be confident to return to work to restore the levels of productivity registered at the end of 2019.
Economy
Economy

The coronavirus pandemic has transformed our world. According to Boeing’s chief, air travel will not match the level of 2019 for two to three years. Warren Buffet, the 89-year-old ‘Oracle of Omaha’ announced that his company Berkshire Hathaway has sold all of its shares in the four largest US airlines.

The global economic outlook is grim. The world economy contracted by an estimated 1.3 per cent in the first quarter of 2020. The global economic decline was driven by a 6.8 per cent decline in China’s economy due to the lockdown in the wake of the Covid-19 outbreak on Wuhan city. Berkshire Hathaway announced a record net first-quarter loss of $50 billion.

Travel and tourism will suffer the worst losses. Recreational businesses such as bars and restaurants have also been badly hit. The construction sector will also struggle, especially as we begin to feel the full effect of the disruption of global supply chains. Retail and wholesale businesses are on a deadly spiral. Household spending is down up to 80 per cent because of social distancing and government lockdown measures to halt the deadly spread of Covid-19.

Social distancing measures and the fear of contracting Covid-19 means personal service types of businesses like barbershops and salons, entertainment and competitive sports will stay closed or operate at very low capacity for a long time. Just removing lockdown measures will not restore confidence in the outdoors and resumption of consumer spending.

And with certainty, Covid-19 cases will not ebb gradually, even when we think the worst is over. It is likely that new epicentres will emerge. And governments will intervene with strong measures again.

Since much of Covid-19 disease, drug therapy or vaccine, will remain unknown for a long-time fear might keep people away from venturing outdoors even when restrictions are eased. For example, it will be long before we see shoppers flock malls again.

Moreover, hundreds of millions of workers will not be confident to return to work to restore the levels of productivity registered at the end of 2019. Even with modest return of consumers, it is unlikely that we will see impressive levels of aggregate demand for product and services by the end of 2020.

This month will provide crucial global lessons as Europe and some states in the USA ease lockdown measures and reopen parts of the economy, including schools. Navigating between the economy and lives is a terrible moral choice. It is fraught with political, economic, health and ethical risks.

As governments move to re-open economy, individuals have to make thousands of small and big choices about their lives, especially their health. Sheltering at home has eroded trust. Strangers will become threats. Would you trust the person next to you in a public vehicle? Would you trust people in an elevator? How about the restaurant and supermarket? How about your workmates?

Fear that the next person might infect you with SARS-Cov-2 will be real despite what the government says about reopening the economy. Some social distancing must remain. And with certainty, Covid-19 cases will not ebb gradually, even when we think the worst is over. It is likely that new epicentres will emerge. And governments will intervene with strong measures again.