Pandemic: winners and losers

(ORDO NEWS) — The Economist magazine’s experts say the pandemic has increased inequality in the global economy. And this inequality could grow further. China, according to the magazine’s experts, is emerging from the pandemic in the strongest positions. The worst of all is in Europe. The fate of America, however, remains in question.

British experts state that back in February, the coronavirus pandemic dealt a severe blow to the world economy, which became the worst shock since World War II. The isolation regime and the sharp drop in consumer spending led to the collapse of the labor market, which resulted in the loss of nearly 500 million jobs. Global trade shuddered as factories shut down and countries closed their borders. A deeper economic catastrophe was only avoided thanks to unprecedented interference in financial markets by central banks, government aid to workers and bankrupt enterprises, and an increase in the budget deficit to almost wartime levels.

The stock market crash was synchronous. However, according to the experts of the magazine, in the process of economic recovery there are large gaps between the indicators of countries that can change the entire world economic order. According to the forecast of the Organization for Economic Cooperation and Development (OECD), by the end of next year, the American economy will remain at the same level as in 2019, but China’s economy will grow by 10%. According to experts, Europe is likely to remain at a level below the pre-crisis levels and will hold at this level for several years. The same fate can await Japan, which suffers from a difficult demographic situation. The gap in the pace of development is observed not only among the main economic blocs. According to UBS Bank.

The magazine’s experts believe that such a spread is a consequence of differences between countries, and in this context, the rate of spread of coronavirus infection is of the greatest importance. China virtually defeated the virus, while Europe, and possibly America in the near future, faced a devastating second wave of the pandemic. Bars have closed in Paris over the past week, and a partial lockdown has been announced in Madrid. In the meantime, in China, visitors can enjoy sambuca in a nightclub.

Another difference lies in the pre-existing structure of the economy. It is much easier to enforce social distancing in factories than in services that involve face-to-face communication. In China, the manufacturing industry makes up more of the economy than any other large country.

The third factor is the policy response to the pandemic and its aftermath. In part, this can be linked to the size of the economy: the United States introduced support measures that amounted to 12% of GDP and cut short-term lending rates by 1.5%. But policy decisions also involve the government’s response to the structural change and disruption caused by the pandemic.

The Economist released a special report that unequivocally states that the changes in the global economy will be colossal. The pandemic will make the world economy less globalized, more digitalized and less uniform. As risks in supply chains are reduced and automation is increasingly used and improved, manufacturers will move production closer to the consumer’s home.

As long as office workers continue to work from their kitchens and bedrooms at least a few days a week, low-wage waiters, cleaners and sales assistants will be forced to seek new jobs on the outskirts. Until they find a new job, they may face prolonged periods of unemployment. In America, experts say, the number of people losing their permanent jobs is growing even as the overall unemployment rate is falling.

As core business moves online, the business world will be increasingly dominated by companies with the most advanced intellectual property and large data warehouses. The skyrocketing rise in tech stocks this year, as well as the digital surge in the banking industry, gives an idea of ​​what to expect in the future. Low real interest rates will keep asset prices high even in a weak economy. This will widen the gap between Wall Street and Main Street that has emerged since the global financial crisis and has worsened this year. According to London, the task that democracies must solve is to adapt to all these changes, while receiving support from the population to maintain a political course.

This, as the experts of the Economist magazine see, does not cause concern for China, which, as it seems, is emerging from the pandemic in the strongest position, at least in the short term. The Chinese economy recovered quickly. London draws attention to the fact that literally this month the country’s leadership is approving a new five-year plan, which pays special attention to the model of high-tech state capitalism put forward by Xi Jinping and the policy of meeting needs through the domestic market.

At the same time, the authors of the article believe that the pandemic also revealed long-term shortcomings of China’s economic model. This model does not provide for a social safety net, and China this year was forced to focus support measures on investment in companies and infrastructure, rather than on increasing the income of the population. Ultimately, the surveillance and government oversight system that allowed the lockdown can impede decision-making and the free movement of people and ideas that support innovation and improve living standards.

And Europe, the magazine writes, is exactly among the laggards. The European response to the pandemic risks freezing the economy rather than allowing it to adjust to new conditions. In the five largest European economies, 5% of workers still depend on a so-called short-term employment plan, in which the government pays them while waiting for a new job that may never appear. In the UK, this percentage is twice as high. Continent-wide suspension of bankruptcy proceedings, the tacit consent of banks to abandon the measures, and a flood of discretionary government aid risk prolonging the lives of so-called zombie companies that would be better off allowed to self-liquidate.

The Economist admits that this is very troubling given that prior to the crisis, France and Germany had already pursued industrial policies that promoted national leaders. If Europe views the pandemic as another reason for maintaining “comfortable” relations between the state and the obedient business community, then the outlined insignificant recession may accelerate in the future.

According to experts, America’s fate remains in question. For most of the year, the United States managed to maintain a balance in its domestic policy. This provided a system of support measures for the unemployed and more significant incentives for business than could be expected in the “bastion of capitalism.” The correct US course also allowed the labor market to adapt and, unlike Europe, was less about bailing out endangered companies as the economy adjusted to new conditions. In part as a result of this, many new jobs have already been created in the United States.

At the same time, London believes that America’s weakness lies in toxic policies leading to a split in the country. President Donald Trump appears to have ended talks on a resumption of stimulus, which means the economy could fall off a financial cliff. Urgent reforms, whether it be to change the social safety net for a technology-driven economy or to channel deficits at a more sustainable rate, are nearly impossible as long as the two warring camps perceive compromise as weakness.

The coronavirus pandemic is creating a new economic reality. According to experts, each country will have to adapt, but the US faces an even more difficult task. If she wants to maintain a leading position in the post-pandemic world, she will have to change her policy.

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