Covid-19 — not any type of stimulus — will determine the length of recession, the trajectory of recession, and the type of economic recovery the world experiences.
Stimulus in the midst of a global pandemic is a band-aid that will generate economic recovery only after the departure of the virus from the globe.
Covid-19 is present in most of the world’s countries. The best any government can do to mitigate the spread of the deadly pandemic is to adopt public health measures and restrict the movement of people both internally and externally. People in motion are the key carriers and transmitters of Covid-19.
However, the result of government action to save lives is drastically reduced economic activity. When people are required to stay indoors, socially distance and wear protective masks, the result is reduced consumer demand leading to economic contraction. That is what is happening in the Virgin Islands and worldwide today.
There are two phases of a pandemic economy. The first phase is what happens before the pandemic ends, probably through a vaccine or discovered cure, or a dying off of the virus after it has infected a specific number of the world population and global immunity is achieved.
The second phase is the post-Covid economy: how the world economies recover after the virus disappears. At this point, the preceding is a long way off. It is mere hypothesis.
The path the virus will take, and how it will impact countries and populations, remains uncertain.
The one certainty is that stimulus, or government borrowing required for keeping workers and businesses afloat, itself will create long-term economic impacts, such as much larger global and national debt.
Stimulus borrowing will lead to decades of much higher national debt repayments, and possible austerity and deflation in countries that do not possess the financial power of being able to borrow from investors cheaply. Economic depression is a global threat as countries face massive economic uncertainty.
To add to these economic woes, public health expenditures will increase dramatically to fight the impact of the virus on the public. This will add further to government debt, and increasingly restrict public investment in alternative economic sectors by governments.
In the Caribbean
Monoculture countries that rely on one or two sources of income — especially countries such as those in the Caribbean that depend on tourism and hospitality to drive economic and job growth — will have it especially difficult during this time of pandemic.
Health experts expect this pandemic to go on for at least two years. The end of 2022 is when this crisis is expected to end. There are some who state that the pandemic could go on for even longer.
Consequently, adapting to living with the pandemic will become the way ahead.
Travel restrictions are here to stay. Bilateral travel will become the norm, with countries establishing travel bubbles created through travel agreements between countries with low or zero cases of Covid-19.
Delusion is never a good thing. Delusion is self-deception. United Kingdom and United States leaders have attempted to gloss over the seriousness of the present crisis. The result has been surges in the numbers of infections and deaths from the virus in their countries.
Until a cure is found, Covid-19 will decide the fate of the world economy.
The best policymakers can hope for is to restrain the worst effects of the virus through wise policy choices, including measures to drive the highest standards of public hygiene.
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