Conventional Way of Re-opening Economy in Uncertain Times – US, UK, Australia and China

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Conventional Way of Re-opening Economy in Uncertain Times – US, UK, Australia and China

 Conventional Way of Re-opening Economy in Uncertain Times – US, UK, Australia and China

The advent of novel 2019 coronavirus pandemic (Covid-19) as a health emergency swiftly took the world by a wave of fear forcing all countries to impose social distancing, overseas travel restrictions, prohibition of social gatherings and lockdowns. In the process, the world economy has taken a major hit as supply chain disruptions contracted economic activity.

Flattening the Curve

While some countries like Italy and China reported a high death toll and infected population, others have learnt from their experience and pro-actively dealing with the situation to avoid a worst-case scenario with limited testing kits and no vaccine to address the problem. To contain the unprecedented spread of the virus, governments in nearly 200 countries and with the backing of the World health Organisation (WHO) have been trying to Flatten the Curve, which refers to observing community isolation measures that keep the daily number of disease cases at a manageable level for health care practitioners.

Read: COVID-19 Vaccine: Battle of Intellectual Property

This is because the rate at which the virus spread across population makes all the difference in whether there are enough hospital beds and medical resources to treat the sick at the same instance.

Now, the countries around the world, especially New Zealand, Germany, Finland and Belgium, that believe to have contained the virus, up to a large extent are all considering a way to slowly open their economies and reduced social distancing restrictions. Although, duration of the economic downturn will depend on multiple factors like the trajectory of the virus itself, public health responses and individual precautions, extraordinary actions have been taken by different countries to support and propel their economies thrive through the crisis.

What Have Different Economies Been Doing?

Given the unconventional nature of the problem, the fiscal and monetary policymakers in all major economies have been working without a playbook. A huge amount of financial and regulatory stimulus support have been extended by all key nations as the companies have had to deal with a lot of on their plate including unemployment, discontinuing operations and maintaining a strong balance sheet amidst lack of business generation and no cashflows. In trying times like these, government intervention has been a key element in avoiding a market failure and maintain a more equitable distribution of resources (income and wealth).

Read: 3 Countries leading the COVID-19 race: Key takeaway for the others

Unemployment rates are at an all-time high in all countries while leisure and hospitality industry has been hit the hardest and certain airlines and travel related companies are on the brink of bankruptcy.

Read: Airlines Struggle for Government Aid Amidst Prolonged COVID-19 Crisis

Moreover, besides the possibility of an economic recession, the other fear is the resurgence of the second wave of virus which could exacerbate the stress on an already beleaguered economy. Thus, as eager people are to restart their normal lives, the situation, henceforth, needs to be continuously monitored by public health officials and companies must temporarily leave behind their competitive interests. The transition to reopen economies presents a major change in the ongoing battle against virus. This is the classic case of the trolly problem, idea from the school of ethics- whether to:

  • go for opening the economy and let the virus subside by ‘Herd immunity’ or
  • fight the virus to the tee and then open the economy.

Both decisions have clear visible downturns and it’s a tough time to be a decision maker be it as a government agent or as a businessman.

United States: The US death toll due to COVID-19 currently at 83,425, surpassing the most optimistic epidemiologic model, with 1,408,636 confirmed cases (as on 13 May 2020). More than 30 million Americans filed for unemployment claims since mid-March 2020 and economic output plunged 5% and expected to go further down. The unemployment rate is expected to reach as high as 40%. To ensure liquidity, the Federal Reserve announced interest rates close to zero, lowered bank reserve requirements to zero, purchased nearly $ 2 trillion in Treasury Bonds and mortgage-backed securities as well as extending emergency credit to nonbanks. The government released a $ 2 Trillion stimulus package, including direct payments of up to $1200 to individuals, hundreds of billions of dollars in loans and grants to businesses and support to hospitals and health-care providers.

United Kingdom: The total official UK death toll stands at ~40,496 as per the Office for National Statistics. The Bank of England cut interest rates to 0.1 % in March 2020 and injected GBP 200 billion into the economy. Numerous policies announced by the UK government to help businesses through the crisis including GBP 12 billion for sustaining businesses; coronavirus job retention scheme involving payment of 80 % of salaries (up to GBP 2,500 per month) of furloughed employees including self-employed workers; statutory sick pay for SMEs with <250 employees; Coronavirus Business Interruption Loan Scheme; Bounce Back Loan Scheme; Coronavirus Corporate Financial Facility and others. Now, Prime Minister Boris Johnson is slowly encouraging public to go back to work and children could be back at school by 1 June 2020.

China: A total of 82,926 confirmed in China with the death toll reaching 4,633. China has suffered a withering blow from the virus leading to steep declines in economic output with the gross domestic product (GDP) falling to 7% in the first quarter. While China’s economy has strong resilience and great potential still, relatively modest policies announced by the Central Bank including reduction in reserve requirements for banks allowing them to loan an additional $ 80 billion to struggling businesses.

Australia: Fortunately, the country has recorded less than 100 coronavirus deaths with more than 6,900 confirmed cases and some jurisdictions have not registered a single new case for consecutive days owing to its geographical location as well as and strong leadership. The country is very focussed on avoiding a second wave of infections and released various financial stimulus packages including the $ 130 billion JobKeeper Payment, a wage subsidy package, to support the Australian citizens working in the adversely impacted sectors; another financial injection of $ 17.6 billion; with the total Government’s support for the economy at ~$ 320 billion across the forward estimates, representing ~16.4 % of the annual GDP, as per the Treasury.

Australia is actually winning the battle against Covid-19 and slowly relaxing lockdown and social distancing measures to send people back to work and get the businesses operating again.

Life First Economy After

It is no doubt that a virus is a powerful foe and market recovery is going to be slow across the world. Also, history suggests that it is advisable to take a hard-fact-based look at the situation and then add some optimism, which stems from the knowledge that most problems are manageable, mitigated or overwhelmed by innovation or some other positive event. Although, past pandemics, albeit much smaller scale, were followed by economic recoveries as capitalism creates powerful incentives for businesses to find solutions for their customers. And currently, there is no shortage of effort being put globally to put this virus behind us.


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