Covid and the economy: are the impacts more complex than we think?’

With a vaccine before christmas looking like a genuine potential prospect, optimism for the future has risen. While it is looking like we may see some sort of return to normality next year, the uncertain long-term economic impacts of covid are becoming more of a concern as we begin to see light at the end of the Covid tunnel. 

What do the forecasts say? While economic forecasting is difficult during the Covid crisis as it is unknown as to when and at what speed we shall be able to go back to normal, vaccine or not, it is still worthy of consideration. 

A report published by Fulcrum demonstrates the Covid impact on real GDP in individual countries, using comparison to the financial crisis of 2008 as a part of the methodology. Despite being the origin of the virus, China’s economic prospects are looking bright as they are on track to record a small amount of economic growth in the year. The report generally paints an optimistic picture, one which shows less economic damage than was seen in the 08 crisis and additionally a faster recovery. Most international economic forecasting sees real global GDP around three per cent higher in 2022 than 2019 levels, however, there is certainly doubt in this hopeful outlook, as many question the ability for economies to start to fully function again, even in the best case scenarios as far as vaccines go.

Behind the general economic downturn, what Covid presents additionally is devastating targeted sectoral damage. The airline industry is one of the worst affected, alongside others such as horticulture and much of the service industry. While the expectation of many economists and the hope of many in said industries is a significant bounce back as life turns back to normal, there is concern that consumers won’t have the disposable cash to help kickstart these industries again, leading to hope for significant stimulus not just as we ride through the storm, but as we leave it. How then, are businesses in these industries coping, aside from receiving bailout money?

The airline industry is no stranger to difficult times, taking big hits to consumer demand around 9/11 and struggling through the flight groundings of the Eyjafjallajökull volcano in 2010. Covid obviously presents it’s greatest challenge yet, is it really a matter of getting through Covid or will there be fundamental sectoral change as a result of the Covid crisis? There have been bailouts across countries to keep airlines afloat, but what has caused a significant change in the industry is the nationalisation and mergers that have occurred as airlines try to find ways to survive. What is occurring in the airline industry may be a sign of the things to come in other industries, the way the airline industry functions is changing and this is far from the only industry which has experienced a significant shift in performance. More than 63% of consumers in a global study said that Covid has transformed the way that they obtain goods and 57% saying the same about how they interact with companies. 

While consumer sentiment has come under heavy scrutiny during the Covid crisis, the forced changes that businesses have had to make is just as much a reflection of the climate we live in. It is so hard to assess the future economic prospects after Covid not just because of uncertainty about returning to normality, but for better or worse, the significant changes to how industries conduct business and how consumer tendencies have and will continue to evolve.

Image: MRC Laboratory of Molecular Biology

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