GLOBAL ECONOMICS Where to from here?
Four COVID-19 scenarios for the global economy Todd Hirsch, Vice President and Chief Economist ATB Financial, Calgary, Canada
Photo Credit: Phil Crozier (University of Alberta)
W
e all experienced it — the shock, fear and uncertainty of the COVID-19 outbreak in early 2020. For most of us, the lockdown months of March, April and May will be etched in our minds forever. But like those living with chronic pain or diseases, now that the initial shock has subsided, we are learning to live with the pandemic. The virus has not gone away, and a vaccine is not yet available so it’s not over. Nonetheless, life goes on and the global economy is starting to re-open and we’re trying to salvage what we can of the year. We’ve been told all along that restarting the economy isn’t a light switch that goes on-and-off — it’s more of a dimmer switch. And the speed at which we turn the light back on will have a bearing on the second wave of the virus. How do we navigate this gradual reopening? What can businesses expect? And what will 2021 look like? There are no straightforward answers to these questions, but it is helpful to imagine some scenarios. Here are four ways the COVID crisis could impact the global economy in the coming months.
The koala
A koala is possibly the most adorable creature on the planet. It is also completely harmless and defenseless. Nothing but cuteness all day long. In the koala scenario, we let down our guards, we open up the economy with no hesitation, and we relax. And nothing happens! The COVID-19 virus simply 12 — PACIFIC PORTS — August 2020
goes away and the economy rebounds almost overnight in the much-desired V-shaped recovery. This isn’t a complete fantasy. The SARS virus, which was a similar type of coronavirus, did just that. But it’s almost a complete fantasy. Scientists are telling us that the COVID19 virus is highly unlikely to simply disappear. Belief in the koala scenario — that this is all much ado about nothing — was more popular back in February and March. And there are still those convinced it’s a hoax or have a conspiracy theory to explain it. These are the people who argue that we are destroying our economy for nothing. However, those voices are becoming less credible as time goes on.
The tarantula spider
They look terrifying but are harmless to humans. (They get their bad reputation from Hollywood. When the movie scene called for a dangerous spider, they used tarantulas specifically because they looked scary but posed no harm to the actors.) In the tarantula scenario, we discover that the economic damage is not as bad as we feared. Slamming shut the global economy for a few months caused a lot of short-term pain, but we flattened the curve and the V-shaped recovery we were hoping for is still in the cards. The recession that some had predicted would last for months (or years!) will be over before we know it. The global economy will rebound quickly.
This scenario is also unlikely. Will the economic impact of the pandemic prove to be as harmless as a tarantula? So far, that doesn’t seem to be the case. Because of the health impacts of the virus and the shut-downs put in place to contain it, 2020 is already on track to being one of the worst economic years on record. It’s too early to tell if the economy will rebound in 2021, or enter a prolonged, multi-year downturn, but the economic pain is real and its aftereffects will be around for some time. This tarantula is deserving of at least some of our fear.
The grizzly bear
In a photo they appear cute and cuddly, but any prudent hiker knows that a face-to-face encounter with a grizzly bear is terrifying. If you react badly or get between it and its cub, the bear will rip you to pieces. But if you do what the experts advise and back away calmly and slowly, the bear is more likely to lumber away and leave you unharmed. COVID’s impact on the global economy may be the grizzly bear. Most countries have been reacting with the appropriate fear and proper respect — like the hiker dropping everything and backing away. But does the grizzly bear attack us anyway, or does it eventually wander off back into the woods? Again, we don’t know for sure. But it’s likely that the precautions we are taking by closing the economy and allowing only a very gradual reopening — as painful and frustrating as this is — will
