As parts of the global economy gradually reopen, it is becoming increasingly clear that unless a vaccine or cure for the deadly coronavirus is found, it will be difficult to fully recover from the worst recession since the 1930s. As temperature testing and distance regulations in workplaces, restaurants, schools, airports, stadiums and other places continue to exist, consumers are nervous and business production is inhibited.
Original title: Vaccines will change everything! The fate of the global economy depends on this.
Global policymakers, who have already announced trillions of dollars in fiscal and monetary support, will need to continue to stimulate economic stimulus to avoid more corporate failures and job losses. Federal Reserve Chairman Jerome Powell has warned that a full recovery will have to wait until scientists produce results, and the RBA has issued a similar warning.
“If we don’t make a breakthrough on health care, then I think the recovery will be very slow,” said RBA chairman John Lowe. “We have a lot to rely on the scientists here. “
Carmen Reinhardt, the World Bank’s new chief economist, echoed that sentiment. “Unless we have a vaccine and everyone on a global scale can use it, we will not achieve the goal of full economic normalization,” she told reporters. “
With more than 5 million people infected and more than 330,000 dead worldwide, there is a climate of despair over the good news about vaccines or effective antiviral drugs.
Moderna Inc. News of the new corona vaccine, which has an immune response in the first phase of the trial, sparked a risk-taking effort last week. But a report by STAT News questioned the validity of the Moderna vaccine trial results, dampening market enthusiasm and undermining risk-taking.
“The market is much more interested in health care news than in economic data,” said Art Hogan, chief market strategist at National Securities. “
A survey of fund managers by Bank of America found that the biggest tail risk was a second wave of infection, which meant quarantine restrictions had to be imposed again. The bank said in its report that only 10 per cent expected the economy to rebound quickly.
When successful drugs can be found and when the economy can return to normal is the dominant sentiment in financial markets.
Health experts warn that the process of developing an effective vaccine will take years. Even then, vaccines will need to be distributed on an unprecedented scale, says Anita Zaidi, director of vaccine development and surveillance at the Bill and Melinda Gates Foundation.
“I’m optimistic that we can develop a vaccine by the end of 2020,” she said. But I don’t have much hope of deploying a large-scale vaccine by 2020, because the scale of the vaccine needed for global immunization is unprecedented. “
Economists at Deutsche Bank are studying the basis that vaccines or cures will not be widely used for the next year and a half.
At the same time, global business is in a state of instability. The International Monetary Fund has warned that the “great blockade” recession will be the worst in almost a century. The International Labour Organisation warned in April that more than 1bn workers were at high risk of wage cuts or unemployment. The World Trade Organisation said global merchandise trade could fall “sharply” in the first half of 2020.
Crucially, consumer confidence has been shattered. Retail sales in the UK, for example, fell by almost a fifth in April.
Bloomberg Economic Research estimates that the embargo has led to a decline of about 30 percent in economic activity, and their study found that the first step in deregulation will have a more positive impact on economic activity than it does later.
Central bankers have to think about what might happen, rather than making tough predictions, and the global economy is likely to remain in crisis mode.
Powell has pledged to continue using the Fed’s tools. The Bank of Japan launched a new lending program worth Y30, 000bn ($279bn) to support small businesses at an emergency meeting on Friday, as key inflation indicators fell below zero for the first time in more than three years in April. India’s central bank unexpectedly cut interest rates to their lowest level since 2000 on Friday.
Shaun Roache, asia-Pacific chief economist at Standard and Poor’s Global Ratings, says it will take time for workers in areas such as tourism to re-employ and move to areas of demand while the world waits for vaccines.
“Without a medical solution, whether it’s vaccines or effective treatment, continuous behavioral changes will lead to significant structural changes in the economy,” he said. “
Torsten Slok, chief economist at Deutsche Bank Securities, said the circuit breakers for all these functions would be a scientific breakthrough. “Vaccines change everything,” he said. “