Advertisement
Macroscope | US and EU have been hardest hit by the coronavirus crisis, but where’s their resolve to crush Covid-19?
- Policymakers and epidemiologists disagree over how much infection curves need to flatten before lockdowns are eased
- The disagreements are fiercest in the countries worst hit by Covid-19, where the response has become too politicised
Reading Time:3 minutes
Why you can trust SCMP
In its latest outlook for the global economy published last week, the International Monetary Fund described the coronavirus-induced shock as the “Great Lockdown”. “This crisis is like no other … In normal crises, policymakers try to encourage economic activity by stimulating aggregate demand as quickly as possible. This time, the crisis is to a large extent the consequence of needed containment measures,” the IMF noted.
Advertisement
To buy time for scientists to develop therapies and, at some point, a vaccine, governments have put the global economy into an induced coma by imposing lockdowns and insisting on strict social distancing rules. While the draconian measures are temporary, and huge efforts are being made to mitigate their impact through unprecedented monetary and fiscal support, the IMF still expects the crisis to rival the 1930s Great Depression.
Certain parts of financial markets are already suffering a meltdown. On Monday, West Texas Intermediate, the US oil benchmark, fell below zero for the first time ever as lockdowns slash demand for oil by as much as a third. The crash in oil prices is putting further strain on corporate bonds and emerging markets, two of the most vulnerable asset classes right now.
Moreover, in a sign that the recent rally in global stocks masks deep uncertainties about efforts to contain the spread of Covid-19, the S&P 500 index has already experienced daily moves of 1 per cent or more 42 times since the start of this year, approaching the annual average of 53 over the past six decades, according to data from DataTrek. As the US research firm rightly noted, “the market is telling us something is … very wrong”.
At the heart of investors’ concerns is the acute tensions between measures to suppress the virus and mounting pressures to reopen economies as quickly as possible, lest the global economy suffer an even sharper fall in output than the 3 per cent forecast by the IMF for this year.
The trade-off between public health and economic welfare is, as I argued previously, an agonisingly difficult one, exacerbated by the magnitude of the economic shock (which itself has adverse consequences for public health) and difficulties bringing the virus under control – mainly because of failures in ramping up community testing, a huge problem in the United States and Britain.
Advertisement