Notwithstanding the multiple vaccines being approved for emergency use at the time of writing, there seems to be a shift in focus from the health sector to the various sectors of the economy.
That is, how quickly can a country’s economy recover?
To answer that, analysts examined domestic and international policies in reaction to COVID-19, attempting to describe the anticipated shape and pace of economic recovery using three alphabets – V-shaped, U, and W.
The assumption at first was that economic recovery - depending on how battered an economy has been because of COVID-19 and the lockdown measures that came with it - will take a ‘V’ shape. That is, economic activity will initially fall to a point that comes almost to a complete halt.
How extreme that point is depends on the various lockdown and financial support measures adopted by countries to weather the COVID-19 storm. The expectation beyond that point was for a speedy economic recovery if the pandemic goes away on its own, like what happened with SARS, or whenever vaccines are made available to the wider population.
No showing up
As time passed, a speedy economic recovery - the second line in the V - was anything but certain.
That’s how we moved from expecting a V shape recovery to hoping for a ‘U’ shaped one. A U-shaped one means that the point of minimal economic activity is going to be above zero; i.e., not coming to a standstill. Think about it as the curve line that comes close to the X-intercept and moves parallel to it, but never touches it for as long as the line goes on.
Piling on misery
A U-shaped economic recovery became far-fetched as more countries suffered second and third waves of COVID19, including mutated strains, forcing countries to introduce new lockdown measures or up the ante for existing ones.
Even Sweden, a country that bet big on herd immunity instead of severe lockdown measures, has been nudged towards taking an approach more in-line with what other countries have been doing since the outbreak.
Ebbs and flows
Next came ‘W’, meaning that countries are now gearing up for multiple points of economic slowdown as the economic and other ramifications from the pandemic ebb and flow. A W-shaped economic recovery implies, hypothetically, that there are two points of slowdown after which things would go back to normal.
This, however, is no longer realistic. That being said, and with vaccines being touted as a way out of the economic stalemate COVID-19 has brought countries down to, the pace of recovery will depend on the following factors.
Dose of realism
First, availability of a vaccine does not mean effectiveness in combatting the spread. This is not about what vaccine will work where, neither is it about having equal access to a vaccine by all segments of a population.
This has more to do with the adoption rate that will bring each country’s population to herd immunity level. Each country is a case on its own, and there will be different ways by which countries would encourage or incentivise their populations to get inoculated.
To provide context here, not all countries have national influenza immunisation policies despite the flu vaccine being better researched than COVID-19 vaccines.
Secondly, different countries are at different levels of economic activity. Take the Purchasing Managers’ Index (PMI), for instance. The index - compiled by IHS Markit for more than 40 economies and calculated on monthly basis - captures best what direction economic activity in a country seems to be taking.
A score above 50 means an expansion in economic activity, based on sector, while a drop below 50 means shrinking economic activity or deteriorating economic conditions.
Before publishing this op-ed, countries like China, Japan, and the US were at different PMI levels. The European Union (EU) is also in a similar position, with varying PMI scores for its 27 economies.
Domestic outcome
The above factors make it reasonably hard to predict the timing of a global economic recovery and when would things go back to a pre-COVID-19 normal. More so as each country is subject to an array of domestic factors that could either hasten economic recovery or impede it.
In Sweden’s case, for example, the no lockdown approach logically meant that there is minimal need to provide financial support to businesses and industries, which could be detrimental for the country’s long-term economic trajectory.
And though PMI provides insights into what’s happening on the domestic economic front, it does so for existing businesses, not ones that are already out of business or are on their way out.
Fewer left
Whether this is because of lockdown measures paralleled with inadequate financial support, or basically because of the pandemic itself, a key outcome would be that there will be relatively fewer businesses to drive growth post the pandemic compared to times before it.
Therefore, economic recovery may not be W-shaped, but may look more like multiple U shapes bound together. Economic activity, after all, did come close enough to a complete halt.
This was only somewhat averted thanks to financial and other support offered by governments. The multiple U shapes mean that economies will witness slowdowns and partial recoveries in the foreseen future until they reach a comparable level of recovery.
Contingent upon the two broad factors mentioned earlier and other domestic ones, recovery and a positive global economic outlook will take more than a vaccine.
The last thought that I want to leave you with: When would the global economy go back to a pre-COVID-19 normal?
- Abdulnasser Alshaali is a UAE based economist.
