Ten Pandemic Pitfalls and One Upside

Ten Pandemic Pitfalls and One Upside

Leaving aside the short-term impacts, let us consider some less-obvious but far-reaching economic changes that COVID-19 may bring about

By now we are all aware that nothing will remain the same when the pandemic subsides. Working-from-home, abolition of physical office spaces, remote learning, net meetings, gig economy, social distancing, automation at work, the vaccinated-non vaccinated divide – everything will weigh heavy on our existence once the “new-normal” sets in. These are news done to death throughout the last one year and these, indeed, are changes that are immediate and evident.

However, behind the scenes, chains of events are on the roll which will ring in changes that are not immediately discernible – but will slowly and surely change the world economic scenario in the long run. The effects will be far-reaching and permanent. Yes, now the vaccine is here. Yes, the economy is sluggishly turning on its side and striving to get up and running yet again. But the following events are most likely to leave a permanent imprint, come what may.

Pitfall #1: More governmental control

There will emerge a scenario where government control on our lives will be back – like the old days. As the free-market economy reeled under the stress of lockdowns, governments around the world had to step in to sustain the market – and rightly so. But it was not only economic interference; the requirements of tracking the spread of the virus led many governments into social and private territories that were till date uncharted. Not that some authorities were unhappy – because the more dictatorial of the lot were already looking for ways to gain access to social data and implement vigilant tactics. The pandemic handed them just the opportunity on a platter. While interventions were actually required during the pandemic situation, there are doubts whether all governments will decently step back once things normalize.

Pitfall #2: Burgeoning public debt

And all this comes at a cost, of course. McKinsey reports that governments have ran into budget deficits of US$11 trillion in 2020 while tackling the pandemic. Economists are uncertain whether such huge spending can be sustainable for long, and fear that sooner or later taxpayers would be picking up the tab. Although developed economies do not show signs of immediate crisis, things will be difficult for developing nations. The whole issue of public debt might have to be reconsidered, with governments using fiscal policies more proactively to drive their economies.

Pitfall #3: Plummeting interest rates

Interest rates are going to drop big time. This is because as governments stepped in, Central Banks across the globe backed them up by printing money and increased quantitative easing. And that encouraged rampant speculative activities across investment markets. This was inevitable, however worried the financial pundits might be over the dubious market-spike and the certain future correction leading to a big slump. As things stand now, the Central Banks have little option, given the fractured labour markets and over-cautious restraint on part of the business fraternity to invest in the current environment.

Pitfall #4: Corporate solvency crisis

With governments and Central Banks offering dole, someone must be there to accept it! Sure, there are – a lot of them, in fact. With businesses of all dimensions going for credit, corporate debts skyrocketed. According to the Bank for International Settlements, just during the first two quarters of 2020 borrowings by nonfinancial businesses touched US$3.36 trillion. Experts are fearful of a “major corporate solvency crisis”, but not much can be done about it right now. Another school of thought detests the idea of offering debt to all and sundry, because that might create a kind of company unable stand on its own two legs – forever depending on the governmental crutch. The debate is on.

Pitfall #5: Haves and Have-nots

However, nothing can deter the dichotomy of the rich and poor. All this financial support from governments happen only in nations who have the funds to engage in such philanthropy. The developing nations mostly cannot afford to infuse life into an emaciated economy, and they risk getting caught in the international debt trap – descending lower and lower in the eternal vortex. Although G-20 nations offering credit to such countries are said to be taking special measures to address this issue, experts don’t think that would be enough.  As per IMF estimates, developing nations would be “set back by a decade” while the World Bank warns of “a new generation of poverty and debt turmoil”.

Pitfall #6: Blue and White move further apart

Not only for countries – the rich-poor divide will be evident at the individual level too as economies stumble back to the path of recovery. Labour-intensive blue-collar jobs as well as jobs in the service sector involve physical proximity or direct contact with clients. Naturally, therefore, these were the first to vanish as lockdowns gripped the world. And these might be the ones never to return, or even if they do, they will be the last to be back. Let’s keep in mind that these are the lowest paid jobs in the market. In contrast, white-collared workers who produce by dint of cerebral labour carried on working and earning from the safety of their cosy homes. And if we considered the wealthiest whose fortunes are determined by shares and assets – the financial markets recovered way faster than the job market. To put it bluntly, the rich were affected the least and recovered quicker that the poor. Experts term this a “K-shaped recovery” that would widen the chasm of inequality than ever.

Pitfall #7: Man to Machine

This one we all know, but its extent and full impact is yet to be estimated. Social distancing requirements and a persisting threat of newer strains of viruses would require complete automation of a lot of manual jobs. Be it assembly belts, mechanical robots or state-of-the-art AI-driven interfaces – whatever can be automated will be, and that too immediately and permanently. That will definitely increase profitability, but the labour market as we knew it will be warped forever; and economists might have to formulate new models to deal with this paradigm shift in labour.

Pitfall #8: Hubbub at the suburbs

Rural economies might experience a long-term upheaval as a noticeable shift in demographics is being observed. As work-from-home becomes business-as-usual companies would be releasing much rented office property. The other side of this coin would be a migration of upmarket professionals from cluttered urban residential centres to sprawling suburb or countryside second homes. And a lot of them would be returning to their rural family homes to save on city living costs. The obvious impact of this would be on rural property costs. However, more long-term effects would be observed as rural businesses compete to woo these newly arrived wealthy clients. The impact would be all-round starting from infrastructure to retail to transport and services. In short, urbanization might speed up in the suburbs, leading to widespread environmental imbalances too.

Pitfall #9: Traveling tight

We all know travel has been badly hit. But with international events including something as important as the Olympic Games being cancelled, the economic impact has been greater than is yet apparent. And no one knows when things would normalize. Just like other physical interactions, people would remain wary of contagion during travel. Hence, the entire logistics of the travel industry could be restructured permanently.  While mandatory health certificates, health check systems, and disinfection routines would be standard operating procedures – the real change might be in the pricing. With patrons seeking more personal space and guidelines stipulating maximum headcount for gatherings, changes are imminent to the basic cost structure – from airfare to hotel tariff and dinner menus. Over the past decade, travel was getting more accessible, the world was getting smaller, and a certain kind of democratization was being observed in tourism. Even mid-segment tourists were venturing for luxury trips – perhaps at least once – to fulfil the dreams of a lifetime. This might no longer happen anytime soon, as upward revision of tourism prices and financial insecurity induced by the pandemic would deter this traditionally tight-fisted segment from splurging. And the super-rich would want to spend additional bucks for extra personal space – pushing up the prices of the luxury segment yet further.

Pitfall #10: Will they still look East?

Right from the beginning of the COVID affair, China had steadily lost international credibility for reasons right or wrong. First, they were accused of spreading the virus and subsequently suppressing the flow of accurate and timely information. Later, there were glaring quality issues worldwide with the ventilators and masks they supplied to tackle the pandemic. Other geopolitical factors like US accusing WHO of siding with China, further complicated the scenario as different countries started taking their own stands on the issue – and most developed nations started avoiding China. All in all, China lost its face to a great extent along with its supremacy as the world’s prime provider of manufacturing services and supplier of raw materials. The first world started to seek fresh pastures as cheap manufacturing hubs, and turned to other countries – including India – for sourcing raw materials. Additionally, many governments decided to cut down on their dependency on imports where critical gods were involved. This trend is likely to gain momentum, bringing about a long-term shift in the supply-chain axis.

And the Upside: Breathing easy

As the world came to a standstill, everyone realized first-hand to what extent day-to-day pollution was choking our planet. During lockdown, demand for fuel plummeted, as well as its price. For the first time, even the common people were convinced about the toll pollution was taking and how restraint on part of the consumers can effectively cut it down within a matter of months. Lawmakers across the world have taken note of this too, and it is expected that environmental scientists and activists would now gain a greater handle to push their cause. This could be the one long-term positive change sparked by the pandemic!

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