By The Economist
Economic projections around the impact of the coronavirus outbreak remain uncertain. The Economist Intelligence Unit’s base case is built on a series of epidemiological assumptions regarding the virus. We believe that about 50% of the world’s population will be infected, that 20% of symptomatic cases will be severe and that about 1% (possibly less) of symptomatic cases will prove fatal. We expect governments to lift lockdowns gradually once the number of cases declines and there is sufficient spare capacity in healthcare systems.
In economic terms, we assume that the worst of the damage will be in the second quarter of 2020 when a large number of economies are subject to the strictest containment measures. Economic indicators are likely to start improving from the third quarter, led by China, which is ahead in its response to the pandemic.
2021: life, but not as we know it
In our baseline scenario the release of pent-up demand, loose monetary policy, the lagged effects of fiscal stimulus and the mathematical effect of a low base will send economic growth rates soaring in 2021. However, life will continue to feel different. Both personal and business confidence will remain subdued, reflecting the continued period of uncertainty until a vaccine or a treatment is finalised and distributed at an affordable cost. Some vulnerable workers may choose to remain in isolation for fear of contracting the virus. The cost to mental health of prolonged social distancing will become more apparent and will be expensive. Some economies will be forced to re-impose lockdown measures, which will interrupt their economic recovery and prevent the full re-establishment of supply chains and travel links.
High downside risks in 2021, including second and third waves
There are several downside risks to our baseline scenario for 2021. The biggest of these is that the virus is not brought under control by the end of 2020, or that second or third waves emerge and are equally as lethal. At present, it is assumed that most people who contract and recover from Covid-19 develop some immunity to it, but this has not been rigorously tested, and it is unclear how long such an immunity can last. At any rate, recent research suggests that only a small proportion of the population has been infected, so levels of immunity will remain low overall.
2022: vaccinate, vaccinate, vaccinate
The following year will be dominated by the challenge of manufacturing and distributing vaccines. Humankind has conquered deadly viruses through vaccinations before, but not with such a large and mobile population. The politics of vaccine distribution will prove extremely tricky, and probably much worse than the recent controversies surrounding the distribution of personal protective equipment (PPE). Nevertheless, as more of the population either develops immunity through infection or protection via vaccination, the global economy should be in a position to continue to recover. We expect labour markets to strengthen and more growth to be generated from the private sector and less from government stimulus.
Will the vaccine live up to expectations?
The most notable risk to our 2022 forecast is the timeline surrounding the vaccine. Delays are likely. The process will have to include animal testing, followed by large-scale human trials to ensure that the vaccine is both effective and safe, and to determine the correct dosage and investigate any side-effects. Effectiveness is a major issue; in the best years the flu vaccine is only about 50% effective, and it can drop to less than 10% among certain age groups, especially older people, who are also the most vulnerable to Covid-19.
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Source: The Economist
Interesting reading on #Postcovidworld can be found on the website of our friends from the Swiss-Portuguese Chamber of Commerce.
Careful reflection has been given on themes, such as
- Impact of Remote work
- Start ups
- Expectations for different sectors
- Impact on our day to day
- What can history teach us?
Last but not least, have a look at McKinsey's insights here.