“The World Will Never Be the Same”… or Will It?
Part 1: An economical overview of the situation
It goes without saying that the pandemic has deeply affected our world on many different levels. The sanitary crisis brought with it an economic one. How this will evolve will determine what our futures look like. Lockdown and fear have greatly reduced consumption, as businesses closed and people were encouraged to stay at home. Traveling, tourism, restaurants, bars, movies and many other businesses have taken a toll. Many optimists would like the system to completely change, use this destruction to rebuild something better and stronger. But just how much was destroyed and how will it likely evolve?
What is going on right now?
The lockdown has undeniably had dire consequences on most economies. The US’s unemployment rate has spiked, and could, according to the Guardian, reach 20%, that means one in five unemployed. Many businesses are laying off more than 10% of their employees. According to the UN, 195 million jobs worldwide may disappear worldwide. Many developed countries are expecting recessions this year as shown in the following image, with a decrease in GDP. According to Bloomberg, the overall cost of this crisis could be 4.1 trillion dollars, 5% of the world’s GDP.
According to Catherine Mann, Citigroup Global Chief Economist, in a Bloomberg TV interview, the recovery from the crisis will heavily depend on the sector. Manufacturers and electronics will most probably know rapid growth after the recession. On the other hand, countries that heavily rely on tourism, such as Thailand, will take much more time to recover from the crisis, as people will have to regain their old consuming habits and trust in the industry. Furthermore, investors with short time horizons (mostly the emerging countries) will experience a tremendous recession, but an impressive growth as well, while developed countries might take 12 to 18 months to reach the January 2020 GDP level, which was predicted to be 3.3%.
This image shows the potential recovery shapes our economy could follow. As McKinsey & Company explains, much of it depends on how well hospitals respond, and how effectively governmental economic policies work in the long run.
Opportunity for change?
In 2006, The European Council published a report on the possible macroeconomic consequences of a pandemic. In the report, they briefly explain that it is hard to determine whether pandemics, such as the Spanish influenza (1917-1918), have had positive or negative impacts in the long run. Some researchers claim that it stimulates economic growth while others find negative effects. It is nearly impossible to isolate the consequences of a pandemic from the rest of world events. The study of past pandemics has nonetheless allowed us to observe certain tendencies, such as a quick return to previous consumption habits. So things might not change that much after the recovery from the virus.
African countries’ debt has tremendously grown because of the crisis. There has been discussion among countries to cancel it. This could be an opportunity for growth, to gain independence from northern countries, as the current economy causes them to heavily rely on other countries, mostly China, or private investors. Governments will also be more likely to invest in medical research and healthcare.
Companies may go through deep restructuring in order to gain consumers over again. Such is the case for airlines. Traveling will probably take time to recover fully from this blow. According to CNBC, the consequences resemble 9/11’s, which took 3 years to recover from. To give you an idea, 96% of world destinations have travel restrictions. Plane related companies are already trying to reassure the public about the safety of planes, through the publication of articles such as: “Flying will be the safest mode of travel”.
The oil market has suffered very much too, reaching negative values. As the previous hyperlinked article explains in detail, this fall is because of how normal markets work (no demand, prices crash) as well as physical issues. Indeed, since no one was consuming petrol, there were more barrels than storage. To get rid of it, they had to pay someone: hence the negative market price. According to Le Monde Diplo, the petrol market was already starting to decline and lockdown might have accelerated its fall. They suggest this might be the opportunity for change, now would be the time to work on a transition to new sources of energy.
Looking into an environmental impact, telecommuting is likely to stay in our work culture. This will have an impact on emissions linked to commuting, but may also reduce the costs of offices and increase employee productivity. However, will this increase carbon emissions linked to the internet?
But things can go very ugly as well. For example, now that the price of petrol is very low and that airlines need to save money, instead of buying new planes that are more energy-efficient, and designed to pollute less, they might decide to run their old aircrafts again, maybe canceling the unprecedented cut of carbon emissions during lockdown. This can apply to many industries and could be a real threat to the progress made in climate fights. Will we have to choose between a strong economy and our planet? Some countries said no.
Such a fall exposed some weaknesses of our system. Perfection does not exist and never will. However, this could be the time to improve what is going on. It is nearly certain that decisions will be taken to reduce the impact of future epidemics.
The direction our future takes will depend on our voices and what governments decide to do. As this article has shown, the path of recovery doesn’t imply big change. Things could go many different ways: they could improve, stay the same, or become worse. Governmental policies play a huge role today, but we are the ones who elect them. Politics matter, especially in times of crisis. We have to change too. We are part of the economy, of the consumption patterns, we can choose to help this world become better.