This seems a good time to look towards life after the coronavirus. We say this because media coverage is rightly dominated by the current impact of the virus and perhaps the reading public would like a change. Also, we have our reservations about much of the data cited in the media, most of all the use of graphs to tell people in country A that, based upon the pattern evident in country B, they should expect the peak impact of the virus in, for example, ten or twelve days. Statisticians are taught to compare apples with other apples, not with pears. The graphs failed to look closely at methodology in different jurisdictions. A study of the different ways that hospitals and health authorities across the world report the cause of death would be a decent place to start.
Our elected leaders like to calm us by pledging that ‘it won’t happen again’ and that they will be better prepared next time. A negative event happens, and the message of the prime minister, chief executive or head of the household is similar. This sounds reassuring but the emergence of the virus could not have been predicted. (We have not consulted Nostradamus, the sixteenth century French physician and astrologer, for any relevant prophesies.) In the last decade there was the severe acute respiratory syndrome (SARS), which was felt mostly in Asia. This could explain why some governments in the region such as Singapore moved more quickly and had more equipment to tackle this latest respiratory disease.
Our take on life after the virus should be shaped by grasping the scale of the resources that have been committed to fighting it. The balance sheet of the US Federal Reserve has reached $5trn or roughly twelve times the size of the Nigerian economy. The CBN governor has outlined a rescue package totaling N3.25trn, equivalent to about 2 percent of GDP. In the UK, the first (and larger) of two support programmes announced by the Chancellor was costed at 12 per cent.
Governments have very different resources that they can devote to shielding their populations from the impact of the virus but they have all created a huge bill for years to come. The UK government made its final repayments under the post-WW2 Marshall Plan in 2006. It would be foolish to assume that the bills will always be serviceable at the prevailing low interest rates. At some point, the rising supply of debt issuance will bring a marked pick-up in borrowing costs.
Particularly in the Western world, the virus has shattered a popular view that the state should help everybody because it has the resources to do so. One message from its politicians, if we are prepared to plough through pages of verbiage, is that they cannot protect every business and very citizen. Such was the official thinking in the Soviet system (that the state meets all our needs from the cradle to the grave), and it did not last 70 years. For an ideology before which many still prostrate themselves, this was a short life.
As the state evolves in the months and years ahead, we see an enlargement of its role in the provision of specific services (health obviously but education and training too). The electoral pressure will weigh upon governments of all political persuasions. Free-market liberals have suffered a major setback. Tax cuts seems a long way off at this point.
Globalisation was already under pressure and we think that it has now taken another huge hit. Without theorizing about the nationality of the virus of course, we wonder whether multinationals can now feel comfortable with heavily-concentrated international supply chains. Clothing, technology and other companies will be reviewing strategy. Buy the spare parts abroad by all means but from a number of sources!
We see a tightening of border controls and visa restrictions coming. In some countries the authorities appear to have got on top of the virus, only to face a second wave from international travelers. Exposure to foreign tourism can do wonders for the balance of payments and for job creation too yet at the same time it is surely not a coincidence that South Africa and Kenya are now seeing a steep pick-up in incidence of the virus. To extend this thinking without any scientific basis whatsoever, Nigeria is hardly a tourist destination and the annual return of its huge diaspora in December/January probably finished in time.
Ten of thousands of Indians are at school or university abroad, mostly in the US and the UK. The institutions closed and they flew home. Despite stringent checks and tests, including mandatory quarantine, set up at all Indian airports, we have to assume that the virus made its way through the controls.
Head, Macroeconomic & Fixed Income Research, FBNQuest