The Economic Dance with Covid-19

← BLOG - The Economic Dance with Covid-19

Around the world, countries are starting to ease their lockdowns. The draconian phase of the fight against Covid-19 is ending. The Dance is beginning.  The recent lockdown and measures taken to control the spread of the virus stopped the global economy in its tracks. The Dance – where regulations are eased, and people begin going back to work/school/social life is more complex.

Different countries are taking different approaches depending on political, medical, and economic considerations. The countries and regions below account for nearly 2/3rds of the global economy so their progress will be crucial in the next few months.

 

UK Starting to Dance, but a nervous Prime Minister makes it hard.

In England, Boris Johnson is nervous about exiting lockdown and it shows. The Prime Minister does not want a second wave of the virus, partly for public health reasons, but partly because it is not clear that the population will go back into lockdown if he orders it. Boris announced last week that the opening of non-essential shopping will start to resume. In the event of a flare up, regional enforced lockdown is likely to be the strategy deployed rather than the whole country.

 

USUnwilling to stay off the dancefloor, even if it costs lives.

The state governments control the Dance and only 9 are seeing Covid-19 cases still rising. Cases are declining in half the states. Many governors are giving in to pressure to unlock their communities, regardless of health impacts. This might be why Americans are already feeling more positive. Airbnb is reporting an accelerated number of bookings, and Mastercard data shows spending habits returning to normal. But, the rise in unemployment over the past few months is scary – the recovery is likely to be a grind not a bounce. It is important to remember that hire-and-fire applies to both recovery and recession. When things do start getting back to normal, the US is the economy most geared up to take advantage.

 

Europe – The stage is set for a co-ordinated Dance routine.

Italy is opening restaurants, hairdressers, and gyms. Belgium is opening zoos, while France and Poland are opening some schools. Cafes are open in Portugal and auto showrooms are open in Germany. German GDP fell by just 2.2% in the first quarter – half the decline in France, Spain, and Italy. The German economy is more global whilst 10% of GDP for Spain, Italy and France relies on tourism. The reopening of borders is now taking centre stage with a return to some tourism by mid-June/early July a target for most European countries. A communal response has been seen so far with France and Germany close to agreeing a half trillion-euro bailout plan. This could be the moment the Eurozone decides to give unity a try. Could Covid-19 be the first economic crisis where the Eurozone exists in a stronger position than it entered.

 

ChinaFirst on the dancefloor, no missteps so far.

China started allowing non-essential retail stores to open before the end of March. So far things appear to be going well. Economically things are bouncing back. Vehicle sales rose by 60% in April, with oil demand up by a quarter. Pollution levels are, unfortunately, back to high levels and the Chinese government is set to announce more stimulus on Friday, on top of the 15% of GDP we have already seen. The province surrounding Shulan (over 100 million people) has been put back into lockdown. Targeted restrictions are a key part of the Dance which will hopefully prevent the need for further lockdown across wider China. This is the first real test of the Dance approach, so we are watching closely.

 

Rest assured we are keeping a close eye on economical trends and twists as they emerge. Providing any rise in infection rates can be controlled locally by regional lockdown, we are cautiously optimistic of things returning to a new normal over the coming weeks.  As always if you have any questions please feel free to contact your adviser.

 

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