COVID-19 has cut a swathe through the world economy thanks to government mandated lock-downs and restrictions. No business closes its doors voluntarily and no individuals enjoy confinement to “barracks” for months on end. It is therefore essential that there is an appropriate reckoning when the pandemic passes. It is clear that mistakes have been made, often fed by extravagant mortality projections, a hyper-ventilating media and posturing politicians.
In our previous Pyrspectives we remarked on the mortality rate compared to the oft-quoted Spanish flu of a century ago. That pandemic killed around 50 million people or approximately 2.8% of the world population at the time. COVID-19 is an extremely mild bug in comparison. Highly contagious, certainly, but with a remarkably high recovery rate.
Of note is the fact that Europe and the Americas dominate the left-hand column whilst greater Asia and Africa dominate the right-hand column. Why? We will leave the “experts” to deliver that judgement.
The final statistics are obviously yet to be compiled but so-far the mortality rate relative to the global population appears to be around 0.01%. The country with the highest number of deaths per million is Peru. Its death rate relative to its total population is 0.1%.
Current “active” cases in the world amount to around 7.7 million and 99% are deemed “mild”. As there are doubtless many cases that have not been detected it is likely that the “mild” percentage is in fact higher.
Your correspondent has been sitting out the pandemic in Australia which is one of the least impacted countries. The international border has been shut since March and many of the State borders as well. It has resulted in an ugly form of parochialism (not unique to Australia). The State of Victoria, which shockingly bungled hotel quarantining, is regarded as a particular pariah. It even introduced an overnight curfew (not seen in wartime) and home confinement extending to 22 hours each day. The curfew applied in Melbourne until a few days ago. A 5km travel limit still applies and residents are not permitted to visit each other’s homes. Retail remains closed. The restrictions are possibly the most severe in the world. The Australia-wide death toll at the time of writing from cases attributed to COVID-19 is 888 or 0.003% of the total population. This is fewer deaths than from the flu in a typical season and lower than the country’s road toll in 2019.
If we examine the development of global cases (not deaths) it appears that the 7-day average of new cases has levelled out to around (or just under) 300,000 – for the statistically minded it is starting to resemble a classic gompertz curve. We hope, that, in time, the curve reverts to a bell shape.
The OECD has re-evaluated global growth prospects based upon the latest information and has reduced the 2020 negatives for several countries, but, in particular, the United States. In June it forecast a 2020 GDP decline of 7.3% for the US but has now trimmed the decline to “just” 3.8%. Good news. The eurozone has seen its GDP negative adjusted by 1.2% to “only” -7.9%; Canada from -8.0% to -5.8% and the UK from -11.5% to -10.1%. The World is now forecast to experience a real GDP decline of 4.5% in 2020 (previously – 6.0%). In 2021 the World is expected to bounce back with a GDP increase of 5.0% but this and other medium-term forecasts are obviously extremely rubbery. A return to pre-COVID world GDP will not occur until 2022 – or later.
If we focus on just some of the larger developed economies and measure real GDP growth from the start of the last global recession (2008) to the end of the June quarter this year the COVID pandemic has wiped out 12 years of growth from the eurozone, Japan and the UK and substantially reduced growth elsewhere. Australia tops the growth list but even there the annualised growth has dropped to 1.7% whilst the US is down to 0.8% and Canada 0.4%. Two of the most grievously wounded eurozone economies are Greece and Italy (not shown below), which have, respectively, lost 35% and 22% of aggregate GDP since 2008. These numbers are simply appalling and underline the magnitude of the recovery task that lies ahead.
The ongoing problem is that much of the economic “activity” of the last half year has been courtesy of extraordinary levels of ‘fantasy’ money provided by panicking governments – all of which will gradually come to a tapered end. The US presents an excellent example: the fiscal response involving support for households, businesses and the health system amounts to almost 15% of GDP. This has pushed the gross Federal debt from 108% of GDP in 2019 to an alarming 138% (projected as at the end of 2020). If unfunded pension liabilities are included the percentage increases to 164% (source: IMF). In other parts of the world many of the fiscal responses have been more extreme. In the eurozone, Germany and Italy, in particular, have provided quite extravagant levels of fiscal support. Thus, a temporary and expensive cushion has been pushed beneath the labouring world economy. The key word is temporary.
Many jobs will not return and many businesses have been permanently wiped out. In particular, enterprises with high levels of fixed costs (airlines, restaurants, hotels and the like) have been smashed.
Will there be a vaccine, and, if so, how soon? We have never been in the rabidly optimistic camp on this question. The world has always suffered from coronaviruses and there has never been a successful vaccine. The common cold and SARS are, after all, examples of coronaviruses.
Short of a vaccine the world will have to learn to live with the virus. In time, these things do seem to pass. We will elect to wear that optimistic hat.