The world leaves quarantine: when the economy of the countries affected by the pandemic will recover

Countries quarantine one after another; the liberated population scatter along the lawns and hairdressers, in a hurry to return to work and former life. But it is unlikely that everyone will succeed, economists and financial regulators warn, writes Air force.

Photo: Shutterstock

The way out of the biggest crisis of the century threatens to turn out to be not as swift and wide as the entrance, they say, and they predict heavy economic rehabilitation, partial paralysis and life-long scars to the world economy.

Even if theaters and offices immediately reopen, business activity, employment, salaries and production will not return to the heights from which the COVID-19 epidemic overthrew them. There are several reasons for this.

Firstly, everything will not open immediately, since the virus has not been defeated, there is no vaccine, many countries are waiting for the second wave, and some have not yet experienced the first. This means that people and businesses are afraid of the future and are in no hurry to spend money on the same scale, undermining the basis of the modern economy - consumption and investment. This is second.

Thirdly, quarantine was expensive. Unprecedented since the last world war, the paralysis of the business, social, cultural and sports spheres of life, along with the collapse of international trade, demanded huge investments from countries to maintain the economy on artificial respiration. This money will have to be returned, which means that in the future there will be less funds for the development and needs of society, and taxes will increase.

Fourth, when the night ends, not everyone will wake up. Many businesses - from airlines to restaurants - will not survive quarantine even with the support of the authorities. Many people will lose their jobs, and finding another one in the new conditions will not be easy.

And even if after a recession in 2020, business activity resumes in 2021, the world economy will not be able to recoup the losses completely and almost 10 trillion dollars will be missed, the International Monetary Fund predicts. And the world is going to spend at least 10 trillion dollars to fight the crisis.

Giant bills

Two dozen trillion is almost a quarter of the entire global economy and approximately one and a half times the budget expenditures of all countries on the planet. This alone is enough to plunge economists into despondency: after an illness, you can quickly restore your health and return to your family and work, but if the bill for treatment exceeds one and a half annual salaries, there is no talk of a quick return to former prosperity.

In addition, most of the money allocated for recovery went to rich countries, while developing countries have yet to figure out how to finance the most difficult stage of the crisis - not the medical one, but the economic one.

On the subject: The US economy showed the largest decline in 10 years due to coronavirus: what's next

It is fraught with a surge of poverty, disunity, nationalism and protectionism, political instability and a recession in trade, that is, it threatens to cast off the world at the end of the last century and nullify all the efforts of recent decades to reduce inequality and poverty on the planet.

And even Sweden, where there was virtually no quarantine, will have a hard time. But more on this later.

Every month, total quarantine and social distancing reduces the annual growth of wealth in any country by about 2%, economists of the Organization for Economic Cooperation and Development (OECD) calculated.

The head of this club of wealthy countries, Angel Gurria, said that recovering most economies would take longer than it seemed recently. It can take up to two years to return to the previous pace of recovery, he warned at a Financial Times conference in May.

Fear and scars

The European Union, the second largest economy in the world after the US, will suffer the most in the developed world. All economists agree on this, but estimates differ greatly. If the IMF and the European Commission predict a decline this year of about 7%, then the scenarios of the European Central Bank allow for a reduction of both five and 15%.

How deep the failure will depend on three things, said Luis de Gindos, vice president of the united central bank of 19 euro-printing countries.

First: how quickly quarantine will be removed. Second: what part of production and consumption will be lost forever. And the third: how successful are the anti-crisis measures of the authorities.

People, frightened by the virus and the prospect of a second wave of pandemic, are afraid to spend money if they have it left after the first coming of COVID-19. And the business does not understand what will be the demand, and postpones investments in expansion. As a result, economic growth slows down as consumption and investment account for the lion's share of the GDP of all developed countries.

The coronavirus has awakened tight-fistedness in Europeans, they stopped spending money and began saving it: some forcedly, since there was nothing much to spend while sitting at home, and others thoughtfully, having learned the fragility of existence from the example of a crisis that came out of nowhere. Statistics prove this: if since the beginning of the century, Europeans have on average saved 12-14% of their income for a rainy day, then in the coronavirus year - almost 20%.

The fear of an invisible mortal enemy is even more palpable in the richest country in the world - the United States. America leads in the number of deaths, and even though the quarantine there is of medium severity, it will not be possible to emerge from it without losses, experts warn.

“Our economy will lose something valuable. We will have scars and the recovery will be long,” said Nobel laureate Joseph Stiglitz, as quoted by Bloomberg.

The head of the American Central Bank, Jerome Powell, recently spoke about scars. If the coronavirus recession drags on, the United States faces a prolonged pause in job creation, capital formation and technological development, he warned. The main thing is to prevent the mass destruction of Americans during the epidemic.

“If household and business bankruptcies are not prevented, their consequences will restrain economic growth for years. Left unemployed for long periods of time, people lose skills and connections, their careers end, and they fall into debt. And thousands of small and medium-sized enterprises and firms are the main engine of employment in the country. Their devastation would destroy the lives of many families and communities and limit the strength of recovery,” Powell said.

A reduction in consumption and investment during a crisis results in deflation, which does not suppress, but only intensifies the pain of the economy. Prices are not rising, there is no inflation, and therefore consumers are more eager than ever to save rather than spend, because they expect that in the future they will buy everything they need cheaper. The vicious circle is also dangerous because in the absence of inflation, debts do not depreciate in value; in order to pay them off, taxes have to be further increased and government spending cut back, thereby further suppressing consumption and economic activity.

Another problem slowing down recovery is rising business costs. Companies have been burned by lockdowns in other countries, especially in China, the global factory that produces about 40% of all imported components. Now they are trying to move production closer to home, find replacement suppliers, build inventory, and accumulate cash. It may be more expensive, but more reliable. What if there is a new epidemic?

And since it is difficult to raise prices in the face of depressed consumption, rising costs eats up companies ’profits, investments in development and job creation. This is fraught not only with rising unemployment and a slowdown in business activity, but also with falling stock prices in the stock market, as a result of which not only those who live on current incomes, but also those who have invested in assets, join the ranks of those affected by the crisis. surplus or accumulation, including pension.

On the subject: 5 countries that will recover first after the COVID-19 pandemic

Swedish way

The world finds its way out of an unprecedented crisis in dense fog, as the IMF chief economist Gita Gopinat recently put it. Only a few years later we will find out whether the diagnosis and treatment were correct, and we will be able to compare the success of different models of combating a pandemic.

All this time, disputes about whether all this pain could have been avoided and without quarantine would have subsided. Did the world overdo it by strangling business? Will the consequences of the economic downturn be more deadly than the virus itself?

At the dawn of the coronavirus crisis, American scientists analyzed the lessons of the previous global pandemic - the Spanish Flu of the beginning of the last century, and came to the conclusion that while the deadly flu was raging, everyone was equally bad, but the restoration of production was faster where the authorities quickly and widely introduced social distancing and improved hygiene.

This time, most countries have chosen hard quarantine. But rare islands of freedom gave confidence to opponents of such a policy. And the first example for them is Sweden.

One of the leading countries and economies of the European Union did not close shops and elementary schools, did not forbid people to leave their homes. The authorities limited themselves to recommending that the population keep a distance and, if possible, work from home, canceled mass events and face-to-face classes in high schools and universities.

As a result, mortality in Sweden was lower than in the most affected major European countries, but several times higher than in other Scandinavian countries. Even in a less restrained and spacious Germany, the situation looks much better: in Sweden, the coronavirus by the end of May claimed 3800 lives per 10 million people, and the Germans died 8200 people with a population of 84 million.

However, Sweden's economy was not hit as hard as other European countries. In the first quarter, according to very preliminary estimates, it decreased by 0,3%, while on average in the EU the fall was 3,5%, and in Italy, France and Spain, which were constrained by strict quarantine, it was one and a half times more significant.

Some conclusions can be drawn from this, but it is unlikely that the connection between the rigidity of quarantine and the dynamics of the economy is straightforward, says Eric Meyersson, senior economist at the Swedish Handelsbanken. As well as the dynamics of mortality, business activity is determined by many structural factors that existed before the pandemic.

They threaten to nullify all of Sweden’s achievements in minimizing inconvenience to business and citizens. About half of the country's economy is exported, and demand for Volvo and other goods and services in the world has fallen sharply.

As a result, the country's economy will fall in 2020 by the same 7% that Europe predicts as a whole, said Swedish Finance Minister Magdalena Andersson this week.

She acknowledged that “a very deep crisis in our economy is developing more rapidly than we expected,” Bloomberg reported. And senior economist at the Swedish debt agency, Marten Bjellerup, added that Sweden, according to his estimates, will suffer slightly less than others, but the difference will be insignificant.

The Swedes are cautious in their assessments and are in no hurry to set an example. Prime Minister Stefan Leuven gathered foreign journalists last week and disowned the image of the moral leader of quarantine fighters. The Swedish model is built on trust between the authorities and citizens, who have the responsibility to do the right thing, he said.

“They write about us as if we are doing something decidedly different from other countries. This is not so, Reuters quotes him as saying. — It’s not true that life in Sweden goes on as usual. Everything is not the same as always.”

The Swedes play for a long time and hope that their soft quarantine model will work better than a series of openings and closures.

“Sweden's strategy is designed to be sustainable over the long term. When people are first locked up and then released, they become more frightened and uncertainty increases,” Handelsbanken economist Christina Nieman, who used to be one of the heads of the Swedish Central Bank, was quoted as saying by the Financial Times.

“It is still very early to talk about whether we will cope better than others. The end result will be more or less the same, in our opinion. Because if it weren’t for the eased quarantine, everything would have been worse - the Swedish economy traditionally suffers more than others from the global recession,” she concluded.

Read also on ForumDaily:

Salary up to $ 136 per year: 000 professions that will be claimed after quarantine

Trump said the U.S. has gone round the world in testing for COVID-19: why isn't it a victory

'It is only gaining momentum': the global economy faces a crisis worse than the Great Depression

The tests do not end: what awaits those who were seriously ill with COVID-19, after being discharged from the hospital

Do you want more important and interesting news about life in the USA and immigration to America? — support us donate! Also subscribe to our page Facebook. Select the “Priority in display” option and read us first. Also, don't forget to subscribe to our РєР ° РЅР ° Р »РІ Telegram  and Instagram- there is a lot of interesting things there. And join thousands of readers ForumDaily New York — there you will find a lot of interesting and positive information about life in the metropolis.