Issue of the week: the great re-opening
Could the arrival of new vaccines unleash enough pent-up demand to spur a repeat of the “Roaring Twenties”?
In January, when most of the world was just becoming aware of Covid-19, “scientists raced into their laboratories, clutching a freshly minted copy of the genetic code of the coronavirus”, said The Economist. “In those early days it was impossible to imagine that within 11 months, three effective vaccines would be created. Yet that is exactly what has come to pass.” We now know that the world can get Covid-19 under control – a development that seemed overly optimistic only weeks ago. No wonder markets have been going nuts as they contemplate the great “re-opening”. The Dow Jones Industrial Average surpassed 30,000 for the first time this week on the back of “optimism about the strength of the economic recovery”, said Harriet Torry in The Wall Street Journal. Investors are looking beyond current woes to mid- to late 2021, when many believe conditions will return to “normal”.
There are many uncertainties ahead, said Michael Mackenzie in the FT. But “an unmistakable bullishness is breaking out”. Why not, said John Stepek on Moneyweek.com. Looking past the short-term gloom, there seems a “good chance” that we could be “lined up for a ‘Roaring Twenties’ when we come out of all this... The cards are falling into place for a massive economic boom.” This recession has undoubtedly been grim, and some people – particularly in the small business sector – “will be struggling for years”. But while we can expect some “serious scarring”, the power of “pent-up demand” looks immense. Indeed, as a report by Richard de Chazal of US wealth manager William Blair makes clear, many households will exit the crisis with “balance sheets that are in even better shape than when they entered the crisis”. It’s all down to government help, of course – and here in the UK, both the Chancellor and his Labour counterpart have warned about high levels of debt. But if you think we’re going back to “austerity”, think again.
In the short term, much depends on vaccine logistics, said the FT. Pharmaceutical firms have already started manufacturing millions of doses and work is under way to secure the vials and syringes needed to set up distribution chains. But ramping up availability will take time, and “advance orders for the first two vaccines have gone mostly to richer countries”. That’s one reason to celebrate the arrival of the AstraZeneca/Oxford jab – which, along with those from China and Russia, has large orders from emerging markets. It’s already clear the “greatest challenge” lies in paying for, and ensuring, the equitable distribution of vaccines globally. Sorting that out is the “single best investment” wealthier countries can make in this final push to defeat the “pandemic scourge”.