With whole sectors halted, most economists now agree the West is already in deep recession. Last week’s conversations about medium-term opportunities from the crisis (cheap energy, diversifying from China and remote working efficiencies) have become background noise.
That doesn’t mean we are automatically headed for a 1930s-style depression. But the speed of economic collapse is different and terrifying in 2020. It took three years for the economy to shrink by a third in the 1930s, but we could face that outcome in three to six months this year.
Before the pandemic, more than 35 million people worked in hard-hit sectors like the U.S. restaurant, travel and entertainment industries. The U.S. travel industry association predicts that in their sector alone coronavirus will eliminate 4.6 million U.S. jobs by the end of April. To put that is global context, 102 countries rely more heavily on tourism than the United States, and will be relatively worse off.
Alexis Crow, head of geopolitical investing at PwC, told Global Translations that “it’s going to take a long time for these sectors to recover.” Talk of a quick recovery is “wildly optimistic” in her view. She worries that central banks can’t directly stimulate the consumption the economy needs to stop its free-fall: “Only 10 percent of commerce is online” and consumption drives 70 percent of American spending, she said.
Recognizing that many people (including lawmakers) feel 2008-2009 bailouts failed to do enough to assist ordinary families, Crow thinks public opinion could be different this time around. Unlike big banks rescued a decade ago, the sectors begging for support now, like aviation, tourism and entertainment are “the backbone of the real economy,” she said.
Crow says we should expect to see “culturally specific support measures” emerge in economic policy. Catching her eye so far: “Germany, a major exporter thinking about export credits. Spain, thinking about how workers can be temporarily suspended rather than laid off. In Asia … you’re also seeing the private sector have leniency,” she said.
The economics will remain complicated by the public health issues, no matter what. “Ironically, the more effective you are in reducing (coronavirus) exposure and slowing down the pace of the contagion, the longer it will take for it to be over,” said Kathy Wylde, head of Partnership for New York City. “So the economic damage is inverse to the success in slowing the disease.” French president Emmanuel Macron said Thursday that we need nothing less than a full reorganization of our economies. [Continue reading…]