If I was to state at the start of 2020 that a single event would disrupt the entire global economy, the amount of economists that would agree with me or even consider the possibility feasible I would probably be able to count on 2 hands. Moreover, the amount that would believe that such an event would cause damage that’s economically irreparable for many years to come would be counted on even less. However, more than half way through the year both of the aforementioned statements seem to be accurate. My fellow economists globally are now not wondering what happened but how to support the economy in its’ recovery, but to do so we have to identify the main inhibitor of said recovery which isn’t any following :
- Governments debt due to bailouts and care packages
- The immense death toll due to the virus
- The disruption of everyday life resulting in an economic freeze
The primary inhibitor of economic recovery going forward is the depletion of confidence in the economy, due to the helplessness in the face of the pandemic that halted the economy completely; resulting in economic stress which loosely translates to fear.
Too many people are thinking of security instead of opportunity. They seem to be more afraid of life than death.James F Byrnes
The quote above is from an American Judge and former governor of South Carolina that aptly summarises the mentality of the masses at this current time. The lack of assurance of economic agents means that COVID-19 will cripple the economy on a similar magnitude to the 1930s Great Depression. Although many compare the ongoing situation to previous economic world events: the 2008 Financial Crisis, the World Wars, such comparisons aren’t accurate. This is because the complete economic fallout during lock down and the lack of knowledge surrounding the source and recurrence of Coronavirus means that this pandemic is distinguishable from prior events as the fear during this time, from an economic perspective, is much greater.
One of the factors of this fear is job-retention, the graph above is a measure of the total amount of job vacancies in the UK as measured by the Office for National Statistics. During the quarantine period, the amount of vacancies have plummeted to the same lows as that of the 2008 financial crisis. Having said that, the decline is much sharper whereas the 2008 decline was slightly more gradual perhaps showing a difference in the severity of the events. Due to the immediate impact of the current pandemic as well as forecasts for unemployment have surged from 3.9% in April to 6% by June. Additionally, the USA have similar statistics through the Non-Farm Payroll where between the months of April and May, 22.2 million jobs were lost and the little economic stimulus from the easing of lock down in June meant that 4.8 million jobs were added yet that amount didn’t even start to make up a recovery in the labour market.
The fear of job retention will stretch far into the immediate future as the labour market will be flooded with skilled workers so competition for jobs will increase. Furthermore, due to the lack of economic growth, the availability of jobs will not increase thus people will feel job jeopardy. This is shown by examples in the aviation sector where job losses are now said to be on par with job losses in the coal mining industry in the 1980s. This fear becomes a prerequisite for people to spend in a more conservative fashion, and that spending is what is required to rejuvenate the UK economy. Although the government is doing everything it can to promote spending, unfortunately there isn’t much that can be done even with the bailouts and future food discounts promised.
Another factor of the fear that is crippling the economy is fear of the virus itself, the uncertainty surrounding the virus means that the fear gained from coronavirus isn’t going to go away. Though lock down is subsiding the fears of a second-wave results in a lack of willingness to indulge in “life as normal” prior to the pandemic.A key example being investors that are still wary of their investment volumes because they aren’t sure if a second-wave is in the near-future and the prolonged effect of this is FTSE shares sliding. This creates an incapability for the economy to recover due to the lack of a succinct end the threat of a second wave still looms over the economy as a whole.
‘Huge supply, demand and uncertainty shock Vix [an indicator of expectations of market volatility] is almost as 50.’Nicholas Bloom
These factors work together to create a fear that can cripple the economy and how the government decides to overcome this fear using policies, subsidies and regulatory systems is a deciding factor on the “post COVID-19 global economy”. Thus the global economy is reliant on a method to overcome this ‘economy-crippling fear’ so the question remains: How do you overcome such a fear?
- Nicholas Bloom, Journal of Economic Perspectives-Volume 28, Number 2-Spring 2014 https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/jep_uncertainty.pdf
- FX Street: Non-Farm Payrolls beat expectations in June: Stocks rally, US dollar down https://www.fxstreet.com/macroeconomics/economic-indicator/nfp
- US Nonfarm Payrolls https://uk.investing.com/economic-calendar/nonfarm-payrolls-227
- City A.M,UK unemployment: 612,000 workers lose jobs as vacancies crash to record low in lock down https://www.cityam.com/uk-unemployment-rate-unchanged-despite-lockdown/