A dan­ger­ous mo­ment for the world econ­omy

...Rise in Euro­pean cases shows there is no respite from the pan­demic

Business Day (Nigeria) - - THE BIG READ -

The world econ­omy is in a dan­ger­ous place. At­tempts to restart ac­tiv­ity, pre­ma­ture or not, have led to a rise in coro­n­avirus cases, par­tic­u­larly in Europe where the pan­demic pre­vi­ously looked un­der con­trol. Re­lief from a po­ten­tial vac­cine, if any works, seems months away. Mean­while, cen­tral banks have lit­tle ca­pac­ity to re­spond to a fur­ther down­turn. Gov­ern­ments are al­ready fret­ting about the debt they in­curred by keep­ing economies in deep freeze through the out­break’s first stage.

Whether in Hong Kong, Aus­tralia, Ja­pan, Is­rael or Ger­many, coun­tries that ap­peared to have halted the spread of the virus are now hav­ing to deal with ei­ther a sec­ond wave na­tion­ally or spo­radic re­gional out­breaks. Only the rel­a­tively iso­lated ar­chi­pel­ago of New Zealand, which has man­aged to sup­press the virus in­ter­nally and cut it­self off from the rest of the world, has reached some­thing ap­proach­ing full nor­mal­ity. This was the week when hopes for a short lock­down fol­lowed by a swift re­sump­tion of eco­nomic ac­tiv­ity were dashed once and for all.

The dam­age done al­ready has been sub­stan­tial. US growth fig­ures re­leased on Thurs­day pointed to the high­est recorded de­cline in ac­tiv­ity in the world’s largest econ­omy. The 32.9 per cent an­nu­alised fall in na­tional in­come in the sec­ond quar­ter was three times the pre­vi­ous post­war record. In a pos­si­ble at­tempt at a dis­trac­tion, Pres­i­dent Don­ald Trump chose that mo­ment to tweet that the US may have to de­lay Novem­ber’s pres­i­den­tial elec­tion be­cause of un­re­li­able postal bal­lots.

Europe is suf­fer­ing, too. Its big­gest econ­omy, Ger­many, re­ported a 10.1 per cent fall in gross do­mes­tic prod­uct (not an­nu­alised) dur­ing the same pe­riod — the fastest since the Fed­eral Repub­lic started keep­ing records in 1970. Spain and France fared even worse, ac­cord­ing to fig­ures on Fri­day.

As the Fed­eral Re­serve’s open mar­ket com­mit­tee ob­served in its in­ter­est rate de­ci­sion on Wed­nes­day, the prog­no­sis for the econ­omy now de­pends on progress against the virus. Even where coun­tries at­tempt to re­open economies, the new nor­mal will still in­volve so­cial dis­tanc­ing mea­sures and cau­tious con­sumers. Cheap money will do lit­tle to stim­u­late con­sump­tion and in­vest­ment when the prospect of fur­ther re­stric­tions be­ing im­posed at any time con­trib­utes to the un­cer­tainty fac­ing busi­nesses and

Les­sons have been learnt in how to treat the virus and shield the most vul­ner­a­ble. The cur­rent rise in cases in Europe has been mostly at­trib­uted to the young who are more com­fort­able with trav­el­ling and en­joy­ing their free­doms but are less sus­cep­ti­ble to Covid-19’s worst ef­fects

shop­pers alike.

This sug­gests gov­ern­ments will have to keep bor­row­ing and spend­ing. A sec­ond bout of lock­downs will, hope­fully, be less da­m­ag­ing than the first, but will still need fi­nan­cial sup­port. The virus strug­gles to spread out­side and many com­pa­nies have bet­ter worked out ways to keep op­er­at­ing while main­tain­ing en­hanced pre­cau­tions. City cen­tres in Europe still look like ghost towns but shops in many out­ly­ing dis­tricts, closer to where peo­ple live, are thriv­ing with­out caus­ing an ex­po­nen­tial surge in cases.

Les­sons have been learnt in how to treat the virus and shield the most vul­ner­a­ble. The cur­rent rise in cases in Europe has been mostly at­trib­uted to the young who are more com­fort­able with trav­el­ling and en­joy­ing their free­doms but are less sus­cep­ti­ble to Covid-19’s worst ef­fects. While the pan­demic has not been beaten, the health­care re­sponse is mak­ing progress.

Lock­downs, how­ever, have slowed but not stopped coro­n­avirus. A vac­cine or other med­i­cal break­throughs will be nec­es­sary be­fore economies can fully re­cover. Un­til then, gov­ern­ments will face pres­sure to fund the in­comes of those who iso­late and help com­pa­nies that have seen rev­enues col­lapse through no fault of their own. The fight against coro­n­avirus is de­bil­i­tat­ing but it is far from over.

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