The road to global economic health is here
Coronavirus economic impact update
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Liberals and nationalists should lay down their weapons, because there is no fundamental trade-off between life and livelihood. Through different strategies, the countries that have controlled the virus best in the past 18 months generally enjoy greater freedom and better economic performance.
Emerging data in the second quarter show that, unlike European powers, China and South Korea, which initially chose to severely blockade, have easily exceeded their peak output levels before the pandemic. They are also able to relax restrictions more than in places where the virus is more prevalent.
Almost as important as controlling infections is to compensate those who have been hit by the Covid-19 economy. In fact, the level of economic support is not much. The advanced economies quickly understood this feature of the pandemic. Emerging and developing countries do not have the same opportunities to obtain extremely cheap loans. The United States has outperformed Europe in this area, although tourism-dependent economies such as Spain and Greece could have done more.
Mistakes made by countries during the crisis phase of a pandemic or in the cyclical management of recovery can be corrected to a large extent in the next few years. Over time, the difference in economic performance should shrink. In the final analysis, it is important for the world economy and individual countries to minimize the long-term economic trauma caused by the pandemic.
The extent of this damage is highly uncertain. But 2021 brought four news, three of which were encouraging. These help explain the brighter global economic outlook since January and the shift from strict containment of the coronavirus to coexistence in the best strategy.
First, the long-term losses will almost certainly be much smaller than the losses after the 2008-09 financial crisis. The impact of the pandemic on the economy is almost a sudden shock, not the result of a fundamental problem in the system that needs to be fixed. Getting as close as possible to the pre-pandemic economic situation is something to celebrate, not to fear.
Second, we now know that compared with the first wave of viruses, modern advanced economies can better adapt to the restrictions associated with the pandemic. For example, the Eurozone economy contracted 14.6% in the first two quarters of 2020, but after a sharp recovery last summer, it lost only 0.9% of its scale during the six-month period of the second wave of infections. For advanced economies, this allows the government to impose restrictions without having to worry about economic disaster as it did when Covid-19 first hit.
Effective vaccines are the third good news for the long-term health of the global economy. They put forward the prospect that people can live a more normal life without worrying about permanent and strict restrictions on social interaction and movement. People are worried about declining immunity, but our knowledge of vaccination has mostly improved long-term economic prospects.
An important piece of bad news is the increased spread of Delta variants, which reduces the effectiveness of lock-in on long-term virus control. Asia and Australia’s current efforts to contain the rising number of cases, successfully implementing lockdowns during the early wave, highlight that it is almost impossible to eliminate the virus from transmission. On the contrary, reducing to a manageable level is the new goal.
For global health and economy, we need to ensure the success of international vaccination campaigns. Delta infections in Portugal, the Netherlands, and the United Kingdom have declined rapidly, but have not reached the same level of hospitalization or restrictions on freedom that the early virus wave had.
As IMF chief economist Gita Gopinath said last week, no vaccination program can be limited to rich countries. She said: “Until the global pandemic is repelled, recovery will not be guaranteed,” she again called on countries with oversupply to share 1 billion doses of vaccine this year.
So far, despite the initial shortage of vaccines and their responsibility to protect their people, there is little evidence that governments of rich countries are hoarding them. But as supplies improve, the top priority will be to vaccinate the entire world. Since reducing the impact of Covid-19 on health has brought such a huge economic return, and the cost of vaccine production is very low, it has never been such a good investment for the global economy.
Of course, there are still great risks. There may be variants that evade protection from vaccination. Over time, immunity appears to weaken, so more vaccine supplies may be needed. Vaccine hesitation in many countries increases the possibility of serious health and economic consequences, even if effective vaccines are available.
Despite these dangers, after a severe crisis, we may still enter a stage of lasting recovery. The effectiveness of the Covid vaccine allows us to see a clear way out of the crisis. It is still full of obstacles, but we should remain optimistic. Humans are good at skipping them.