While still suffering due to the consequences of the pandemic, people start to look forward (especially with countries like Spain, Germany and Switzerland announcing easing of quarantine restrictions) to what will happen when the pandemic will end (or, at least, the global lockdown will be eased). Therefore, here is a look at what are some of the opinions about the longevity of impact of COVID-19 pandemic, and how long it will take the economies to fully recover.
According to the President of the United State, Donald Trump, once the economy restarts, it will rocket itself out of a deep recession and lead to an economic boom “perhaps like never before.” However, the problem with this statement is that, even though theoretically it kind of makes sense (the demand for goods/services should rise sharply when people will be free to move around), it doesn’t take into the account the psychological factors, i.e. will people really rush out to buy things, or (most likely) they will prefer to stay at home for the first few weeks/months, as a precaution measure. “You can’t just turn the light switch on and have everyone go back to work, as much as businesses would love to do that,” Suzanne Clark, the president of the U.S. Chamber of Commerce, said in an interview. “It’s going to be the opposite of a green light. It’s going to go from red to yellow and then green.”
A survey last week by Seton Hall University found that seven in 10 Americans would not feel comfortable attending a sporting event until a vaccine for the virus was developed. New polling by the Sports and Leisure Research Group, Engagious and ROKK Solutions finds that only about a third of Americans would take a commercial flight, see a movie in a theater or visit a theme park now if they were allowed to do so. In follow-up interviews, respondents stressed two steps that would help them feel comfortable resuming those and other economic activities: reassurances from medical professionals and the development of a vaccine.
Despite that, at a recent White House briefing, Trump said the administration was “very close to completing a plan to open our country hopefully even ahead of schedule,” saying it would “soon finalise new and very important guidelines to give governors the information they need to start safely opening their states.”
In UK, the forecast presented by EY ITEM Club is less positive in comparison to Mr. Trump’s predictions about US economy. As the damage for jobs and growth unfolds, the EY ITEM Club said it would take until 2023 for the the economy to return to the level reached at the end of last year due to the depth of the crisis. The group of economists said GDP was set to collapse by 6.8% in 2020, before returning to positive growth of 4.5% in 2021 as businesses try to make up for lost time and consumers ramp up their spending again.
The forecast is based on the assumption that some lockdown restrictions will start to be eased in May, with controls relaxed further in June. As such, the ITEM Club believes the economy should benefit later in the year from a degree of pent-up demand as people are allowed to travel again and return to the shops. The ITEM Club said GDP would fall by about 13% in the second quarter amid the widespread lockdown measures in place across Britain and in other big economies, sliding six times faster than in the deepest quarterly decline of the 2008 financial crisis. Unemployment could hit 6.8%, surging from a rate of 4% before the crisis struck.
In 2011, a study by a group of British economists and health science academics was published, which is very relatable to the current situation. In that study, they were estimating the economic impact of pandemic influenza on the UK economy. Their scenario models virus incidence and fatality rates close to the current best estimates and includes strong and early social distancing measures such as school closures and work-from-home arrangements that we see today in many countries fighting the pandemic.
Their model estimates a 21 per cent decline in U.K. GDP in the first full quarter of the pandemic, with a 4.45 per cent decline in GDP for first year. The model also suggests the time frame to economic recovery is about two years. The current IMF projection for the U.K. is a 6.5 per cent decline in annual GDP.
Steven E. Salterio, Stephen JR Smith Chair of Accounting and Auditng, Professor of Business, Queen’s University, Ontario, claims that based on this study, as well as numerous other studies he found, the conclusion of a significant decline in GDP in the order of 4.5 to six per cent with full recovery within two years seems to be well justified.
The Smith Family
The Smith family hopes things will go back to normal as soon as possible. John hopes he can reopen his garage soon and start gaining revenue from it again; Jane, despite being relatively well-off during the quarantine, wishes to go back to her gym and work with her clients in-person; Jack wishes to go back to school to meet with his mates; and Arthur wants to be able to go outside, as he doesn’t want to spend the little time he has left sitting at home and doing nothing. However, even if life will stabilise relatively, and their wishes will be fulfilled, it doesn’t mean that the impact of the pandemic will stop. Because of the economic crisis created, the GDP of whatever country they live in (be it Russia, Switzerland or somewhere else) will fall. This will lead to an inflation, making prices higher and hence resulting in the falling demand. As a result, John’s profits will be definitely than what they were before the pandemic, while Jane’s earnings and Arthur’s pension money will allow them both to buy less things. Overall, the family will still feel the impact of the pandemic, even when things will become relatively “normal”.
Questions for further study
- Will the world ever truly return to “normal” state, or will it be changed permanently (either in a major or minor way)?
- Do you agree with these predictions? Why or why not?
- When do you personally think the economy will recover? What are the basis of your prediction?