As parts of the global economy move slowly toward reopening, it is becoming clearer that a full recovery from the worst slump since the 1930s will be impossible until a vaccine or treatment is found for the coronavirus.
Consumers will stay on edge, and companies will be held back as temperature checks and distancing rules remain in workplaces, restaurants, schools, airports, sports stadiums and more.
China – the first major economy consumed by the virus and the first to re-emerge – has been able to revive production but not demand. The lesson for other economies: there will be a stop-start path back toward normal.
There is also the risk of more flare-ups of the virus. About 108 million people in northeast China have been put back under varying degrees of lockdown as a new cluster of infections was reported. Doctors said the coronavirus has manifest differently, suggesting that it may be changing.
In South Korea – where the virus was controlled without a hard lockdown – consumer spending remains weak as infections continue emerge.
Sweden’s highly contested response left much of the economy open, yet the country is still headed for its worst recession since the Second World War.
That means policy makers – who have announced trillions of dollars of fiscal and monetary support – will need to keep the stimulus flowing to avoid more company failures and job losses. US Federal Reserve chairman Jerome Powell said that a full recovery will need to wait until the scientists deliver, a warning echoed by his Australian counterpart.
“If we don’t get breakthroughs on the medical front, then I think it’s going to be quite a slow recovery,” Australia’s central bank chief, Philip Lowe, said last week. “We’ve got a lot resting on the shoulders of the scientists here.”
Harvard University professor Carmen Reinhart, the incoming chief economist of the World Bank, had a similar message. “We’re not going to have something akin to full normalisation unless we (a) have a vaccine and (b) – and this is a big if – that vaccine is accessible to the global population at large,” she told the Harvard Gazette.
With global infections exceeding 5.4 million and a death toll of about 345,000, there is an air of desperation for good news on either a vaccine or effective anti-viral.
Shares in US-based pharmaceuticals company Moderna hit a record on Monday on early data from a small trial of its coronavirus vaccine. It gave up some of those gains as investors weighed the early nature of the vaccine data.
A survey of money managers by Bank of America found the biggest tail risk is a second wave of the virus that means restrictions will have to be re-imposed. Only 10 per cent expect a rapid rebound, the bank said in a note titled V Is For Vaccine.
The race for a cure has a geopolitical edge, too. US President Donald Trump has vowed a Manhattan Project-style effort dubbed Operation Warp Speed to develop a cure, while Chinese President Xi Jinping has pledged to make one universally available once it is developed.
The fusion of when successful drugs can be found and when economies can get back to normal is dominating sentiment in financial markets.
“There is a global bounty on the virus,” said Stephen Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London. “I don’t see how it is wiser for investors to bet on the virus than to bet on science, technology, and unlimited political and financial capital in the world to contain and defeat the virus.”
Health experts said that the process for developing an effective immunity will take time – possibly years. And even then, it will need distribution on an unprecedented scale, according to Anita Zaidi, director of vaccine development and surveillance at the Bill & Melinda Gates Foundation.
“I am optimistic we can develop a vaccine by the end of 2020,” she said during a discussion hosted by Bloomberg New Economy. “I am not very hopeful that we can deploy a vaccine for mass use by the end of 2020 because of the scale needed to immunise the whole world.”
Deutsche Bank economists are working on the basis that a vaccine or a cure will not be widely available for the next 18 months.
In the meantime, the cogs of global commerce are all but still. The International Monetary Fund said the Great Lockdown recession would be the steepest in almost a century. More than a billion workers are at high risk of a pay cut or losing their job, the International Labour Organisation said in April. World merchandise trade volume is likely to fall “precipitously” in the first half of 2020, according to the World Trade Organisation.
Critically, consumer confidence is shattered. One example: UK retail sales dropped by almost a fifth in April.
Bloomberg Economics estimated that the lockdowns triggered a drop in activity of about 30 per cent and its research found that the first steps to relax controls will have a more positive impact on activity than later ones.
Central bank chiefs, who have had to resort to considering scenarios instead of hard forecasts, are staying in crisis mode.
Mr Powell has pledged to keep using the Fed’s tools. The Bank of Japan, in an emergency meeting on Friday, launched a lending programme worth 30 trillion yen (Dh1tn/$279 billion) to support small businesses as a key inflation gauge slid below zero in April for the first time in more than three years. India’s central bank cut interest rates in an unscheduled announcement on Friday to their lowest level since 2000.
While the world waits for a vaccine, workers employed in areas such as tourism will need to be re-skilled and shifted to where there is demand, a process that will take time, said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings.
“Without a medical solution, either a vaccine or effective therapy, persistent behaviour change would lead to large structural shifts in the economy,” he said.
Big employers are already adapting to the new, new normal.
Facebook planned to hire more remote workers in areas where the company does not have an office, and allow some current employees to work from home permanently. JPMorgan Chase expected to keep its offices half occupied at the most for the “foreseeable future.”
The circuit breaker to all of this would be a scientific breakthrough, said Torsten Slok, Deutsche Bank Securities chief economist.
“A vaccine would change everything,” he said.