Since the beginning of the COVID-19 pandemic, the second-wave contagion has been a much-feared scenario among investors. What will happen if the global economy faces another round of business shutdowns?
How would the central banks and governments react, and what would the implications be for countries in the Middle East region?
The development of the first wave was a learning curve for most countries. However, we saw a strong reaction by the UAE government to ensure the spread is contained. Various preventive measures were implemented including a lockdown in multiple emirates, the setup of test centres, and mandatory face masks.
The face mask requirement in particular was an early and strong measure, which now, months after the implementation in the UAE, we see being adopted by other countries - including France and Italy - as an approved measure to help avoid infections.
Rapid action is paying off
This approach has been one of the main reasons that residents and investors are feeling safer during these challenging times. The measures and enacted laws are extensive and range from stimulus packages and SME support to sustainable investments, such as the support of local farms to secure food supplies on a long-term basis. Hospitals have been equipped with all necessary supplies.
All this puts the UAE in a good position to withstand the economic effects in the event of a second wave, and will help further strengthen its position in the region, where we see more governments approving laws and stimulus packages to provide local support the way the UAE has done within its borders.
Regarding the pandemic itself, we believe a second-wave contamination will likely be managed differently than the first. While we saw a complete economic shutdown during the first wave, we may see partial, selective ones during a presumed second wave, and hence with less impact on overall activity.
The World Bank has predicted a 6 per cent decline in global GDP, which would reach 7.6 per cent in case of a renewed shock. But investors and policymakers are better prepared than at the time of the first wave. This means a second wave of contamination won’t be a second wave of shocks.
So, are we prepared in our region? Since there has been no comparable event in recent history, the extent of the first wave impact was difficult to predict. This - regionally and globally - led to a hit on consumer spending and investor behavior, with many taking a defensive approach.
Locally, however, we believe that having gone through the experiences of the past months has allowed local governments and policymakers to build up a solid foundation to tackle a second wave. We believe that despite potential market volatility, investor trust will return and remain high long-term.
- Dino Ibric is Vice-Director at Swissquote MEA.