The economic recovery which looked so impressive in June is slowing, but so far so predictable. The next year will be tough, but I am sort of optimistic about the longer term.
The economic opportunity and danger and the great economic boom of 2022-2030
Let me put in a caveat: I am worried about the UK. To a lesser extent, I am worried about Europe and the US. And whatever happens, from an economic point of view, the next 18 months will be grim. But beyond that, I am optimistic, especially concerning the global economy.
The UK economy grew by 2.1 per cent in August on the month before. Usually, people like me would be waxing lyrical about this ‘remarkable growth.’ But on this occasion the data marked a sharp slowdown in growth. In July, month on month growth was 6.4 per cent and June it was 9.1 per cent.
More the point, at the end of August, UK GDP was still 9.2 per cent less than at the end of February.
None of this is surprising— and this is not being wise in hindsight. What we see now was widely predicted.
But what will happen next? The next few months will be tough. Financially speaking, some people are doing well from Covid, but I have yet to meet the person who, from the quality of life perspective, is looking forward to several months of mask-wearing, social distancing, and semi and full lockdowns. This winter will not be fun. I am sure we all agree on that point.
But from a virus point of view, I am pretty confident about next year, at least from spring onwards. I suspect a vaccine will be available by the end of this year/early next. Manufacturing of the vaccine will not scale up immediately. At first, its use will be for especially vulnerable people. Then for key workers. It probably won’t be available en masse until the end of next year. But in parallel; treatments for Covid will improve — they already are. Technology will help. For example, an Israeli company is developing a fabric for use within masks, which will be 99 per cent effective at neutralising Covid.
The combination of better mask technology, Covid therapies, and vaccines, will combine to both simultaneously significantly reduce the R rate and the fatality rate. And that is all we need to do. That is why I am optimistic about next year.
Post-Covid, unemployment will be sky-high. Many businesses will have gone bust; it takes time for such conditions to reverse.
I am optimistic about Covid in 2021, but pessimistic about the economy.
But, in 2022, I expect the economy to boom — to be clear, I am talking global economy here.
The reason is simple; it can be summed up a meme that is hanging around at the moment: “We have seen five years of digital change in three months.” Or is it “five years of digital change in six months,” or maybe “ten years of change,” — the meme does not hold up to statistical scrutiny. But it is broadly right. Covid has accelerated the rate of digital adoption, and post-Covid this will not reverse.
Increased remote working, increased automation, increased digital transformation, and increased e-commerce will transform the economy, hollow out city centres, free up real estate that is currently used for commercial purposes to become residential.
Not all companies will successfully make this change, and they will go bust. Those that do make the change will flourish, and the stock market will reflect this.
There are risks to this. Post-Covid, we may see an economy emerge that is over-regulated, too safe, too risk averse.
Masks serve as a good metaphor. I diligently wear my mask like most people do, but like most people, I don’t particularly appreciate wearing it. I think mask-wearing creates barriers between people, reduces the interaction we have with people when we are out — you know the casual joke, the odd smile, just general niceties we share with strangers. I worry about people who don’t think this is a problem: they must be intrinsically unfriendly.
I see this issue of wearing masks, creating barriers, as a good metaphor for the main post-Covid risk that the world will face. If nations and communities draw in on themselves, the result will be an economic depression. The last time this happened and each country became more inward-looking, it ended with a world war and then the detonation of two atomic bombs.
Related to this, I fret about how Covid threatens to exacerbate inequality — there is lots of evidence to suggest inequality has increased in this crisis. Rapid technology change has a similar effect; it creates winners and losers. Rising inequality leads to popular discontent, and rising popular discontent leads to uncomfortable electoral choices, which can lead to countries drawing in on themselves. We have been here before. And to repeat from above, it ended in a world war.
I am especially worried about the UK, and to a lesser extent parts of Europe — which seems to be afraid of change — and the US. To an extent, you can contrast the way different countries have dealt with Covid. China, Germany, Japan, South Korea and much of South East Asia managed the virus exceptionally well. The response in the UK and US has been disastrous. I am tempted to say that the economy post-Covid will mirror this.
Back to boom
On the other hand, we have seen massive fiscal stimulus across the globe. In the UK, for example, government policies such as supporting workers on furlough; while lockdown has meant we have little to spend our money on, has led to higher savings.
Post-Covid, many people will convert these savings into spending. There will be massive spare capacity post-Covid, but I expect this to be utilised quite quickly. Some modest inflation will follow, but high unemployment and increased productivity created by the move to digital technologies will keep a lid on inflation.
I am dreading the winter 2020/21. But providing I survive Covid, I am looking forward to the great economic boom of 2022 to 2030.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.