Covid-19:why the economy could fare worse than you think

China is bouncing back from the effects of corona virus And the world is watching to see what they can expect from life after lockdown China’s economy is now functioning at around 90% of normal levels 90% is an incredible achievement But in practice it will feel very, very strange A 90% economy may not sound too bad but for many it could be catastrophic Some of the worst unemployment numbers in this country’s history 6.6million plus people laid off in a single week It wouldn’t be that surprising if we think we’re kind of through the worst of it.

we end the lockdown and then actually then things start to get even worse As global lockdown ease the economy faces the greatest challenge in living memory Here’s what you need to know In China, factories are up and running Classrooms are full. Restaurants are open But the economy has not returned to normal In fact, it’s operating at around 90% of usual levels And as lockdowns ease elsewhere, this “90% economy”could be what the rest of the world has to look forward to Regardless of how countries have dealt with the pandemic.

Is it right time to open businesses?

it’s becoming clear that once businesses have to operate with social distancing in place the economy can be expected to shrink by about 10% whether that is in South Korea, America, or Sweden But the missing 10% will mean life will feel far from normal In China, large chunks of everyday life are missing Having collapsed in January consumer footfall has recovered to about half its previous levels Hotel occupancy is still down by around 50% And 75% fewer people are flying What’s mainly in the missing 10% is stuff that is hard to do if you’re trying to social distance So, things like restaurants and hotels, theatre, cinemas And crucially, it’s also the way in which people tend to have fun So, it’s a world where you work, and then as soon as the day is over you immediately get back to your house as fast as possible This dip in so-called “fun spending” will continue even after lockdown are relaxed In Sweden most people were never asked to stay at home during the pandemic But Swedish spending patterns over the past few months have mirrored those in neighbouring Denmark which has been under lockdown Daily restaurant turnover fell by 70% last month as uncertainty .

 the economy and fear of infection meant fewer Swedes ate out And while overall Danish spending fell by 29% during lockdown Swedes cut their spending by almost as much What the evidence suggests now is that actually it’s people’s own voluntary decisions about how they behave which are shaping economies actually more than what the government is telling people to do The lockdown itself is not really influencing behavior that much The true economic impact of imposing lockdowns will take time to emerge In China it was several months after the lockdown began to be lifted before bankruptcy numbers started to rise It wouldn’t be that surprising if we think we are kind of through the worst of it

Is it right time to end lockdown ?

we end the lockdown and then actually then things start to get even worse than we had expected For the past few months the global economy has been propped up by unprecedented levels of state aid In Europe’s five largest economies one-in-five workers is currently in a special scheme where the state pays their wages The government has deployed €750bn to sustain companies That’s unprecedented The government is going to step in and help to pay people’s wages It’s only as this support is gradually withdrawn that the wider cost of covid-19 will become clear It will feel quite sort of uncertain because, you know no one really knows how businesses and households are going to be able to survive weeks and months of much lower incomes It will impact all levels of the economy .

what are the impact of corona virus on economy?

Let’s take a look at one scenario A small-business owner runs a chain of restaurants When the pandemic hits, he takes out a loan and furloughs his staff He is not alone in March, more cash was handed out to UK businesses than in any month since records began After lockdown, he re-opens. But business is slow So, he makes staff redundant And closes a restaurant as he can’t pay the rent This has already been happening In the first quarter of the year, the share of commercial tenants who paid their rent on time in Britain fell from 90% to 60% With big firms like Burger King admitting they couldn’t make rent on empty restaurants Without these rent payments his landlord can no longer keep up with her mortgage And ultimately her bank is left with debt that cannot be repaid The problem with all of these losses across the economy is that someone eventually has to admit that they are going to bear these losses, and the consequences of that for business confidence and for investment could be very significant If you are concerned that your customers, or your tenants or whoever is not going to actually be paying the money they owe you then making new investments is not just risky it’s actually completely impossible to price because everything is so unstable And so the risk of that is  things like investment get cut back massively and that will, you know, that will have very large effects Key economic factors already indicate that.

Can world facing a prolonged recession?

the world is facing a prolonged recession Already unemployment in America is at its highest rate since the Great Depression But these losses will not be felt equally To see how, let’s go back to our restaurant owner The industries hit hardest by the covid-19 pandemic are labour intensive and rely on an army of low-paid workers And it is these people who are particularly likely to lose their jobs In America you are already twice as likely to be made redundant if you are earning less than $20,000 a year, than $80,000 a year The kind of jobs that won’t exist at all or in much-reduced numbers will be the kind of jobs that are typically done by people who are paid less Jobs that are done by women and jobs that are done by ethnic minorities more commonly So, that’s jobs in things like leisure, hospitality retail trade and that kind of thing And so, I think you could expect unemployment to be really concentrated in certain groups.

What Economic changes will shape the political agenda ?

Economic changes will shape the political agenda in the post-lockdown world You could imagine a situation where it becomes kind of common sensical that the essential workers, who’ve kept the economy going you can imagine a push towards trying to improve their standard of living and standard of work On the other hand, you could imagine a situation where countries kind of close in on themselves and say, you know we don’t want immigrants because immigrants bring disease and we want to make sure that we have capacity to build vaccines for our citizens, for no one else It’s too soon to know which way the political tide will turn and each country’s response will be different But one certainty is that the longer we all have to wait for a vaccine to be developed and distributed or effective treatment found the more pronounced the effects of the 90% economy.