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  1. Analysis
October 14, 2020

Covid-19 pandemic to cause lasting damage to living standards – leading macroeconomic influencers

The Covid-19 pandemic has resulted in high unemployment rates and bankruptcies, while threatening to have a lasting effect on living standards. While people and economies shift to new sectors, the adjustment is expected to be long and painful. Macroeconomic influencers share their views on the Covid-19 impact.

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  • How have Chinese consumers reacted?
  • How might the Chinese government react?
  • What are the potential growth opportunities?
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Howard Archer

Howard Archer, Chief Economic Advisor to EY ITEM Club, shared an article on comments made by the International Monetary Fund (IMF) that the Covid-19 pandemic will cause “lasting damage” to people’s living standards. The pandemic is expected to result in huge job losses with women and low-skilled workers projected to be most affected. Bankruptcies and extreme poverty are also expected to increase.

Governments may be forced to increase taxes on wealthy people and companies by raising progressive taxes. Taxing high income brackets and affluent individuals will provide access to finance enabling governments to tackle the pandemic, while limiting economic contraction.

The IMF also noted that the pandemic may wipe out some sectors of the economy and that tourism and commodity related economies will be the most affected. The impact of the damage to living standards caused by the pandemic is expected to last for a long time, as the adjustment and shift from struggling sectors to new sectors such as digital technology will be slow.

Daniel Lacalle

Daniel Lacalle, chief economist at Tressis SV, shared his article on how bankruptcies are rising despite trillions of dollars in liquidity being poured into the economy. He noted that companies are going bankrupt at a faster pace compared to the Great Depression. Solvency crisis cannot be addressed through liquidity as it only disguises risk but does not resolve the issues associated with solvency such as lack of cash flow, he added.

More than 10% of companies across major economies in the world are on the verge of bankruptcy, according to Moody’s. Lacalle attributes the increase in bankruptcies to the policies adopted during the 2008 crisis. These policies kept sovereign bond yields at low levels and increased liquidity injections, which ultimately benefitted large corporations and kept solvency ratios low. The lockdowns initiated during the pandemic further exacerbated the solvency crisis, he added.

Lacalle recommends the need for open markets and flexible restructuring mechanisms to address the solvency crisis.

Gregory Daco

Gregory Daco, chief US Economist at Oxford Economics, shared an article on Johnson & Johnson (J&J) pausing the clinical trials for a Covid-19 vaccine under development, after a patient fell sick. J&J is the second company to have paused clinical trials after AstraZeneca.

Experts noted that such pauses are common and indicate that the regulatory safeguards aimed at protecting the public are in place. Pharmaceutical companies are facing mounting pressure from governments and politicians for quick delivery of a vaccine and such incidents raise safety concerns, the article added.

John Ashcroft

John Ashcroft, an economist, shared an article on China’s imports growing beyond pre-pandemic levels by 13.2% for the first time since June. Exports also grew by 9.9% in September on a year-on-year basis. The increase in exports comes as markets start to reopen across the world giving a boost to shipments from China.

Food shipments accounts for majority of the imports including grain imports, which increased by 35% from the previous year and meat shipments increased by 40.5%. Electrical and mechanical goods accounted for majority of the exports and increased by 11.8% compared to the previous year.

As Europe and the US experience a second wave of Covid-19 infections, it is unclear as to whether it will affect the Chinese economy.

Linda Yueh

Linda Yueh, economist at University of Oxford, shared an article on China’s plans to test more than nine million people in the city of Qingdao after 12 new infections were discovered at the Qingdao Chest Hospital. The hospital is treating travellers from abroad although the exact source of the infection is still unknown.

The cases were linked to patients of the hospital apart from a taxi driver. The hospital as well as other locations visited by the taxi driver have been placed under lockdown as part of containment measures. The cases occurred after the Golden Week holiday in the country, during which millions of people travelled domestically.

Related Companies

Free Whitepaper
img

What is the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry?

While wanting to protect the country from being overwhelmed by Omicron, China’s adherence to a Zero-COVID policy is resulting in a significant economic downturn. COVID outbreaks in Shanghai, Beijing and many other Chinese cities will impact 2022’s economic growth as consumers and businesses experience rolling lockdowns, leading to a slowdown in domestic and international supply chains. China’s Zero-COVID policy is having a demonstrable impact on consumer-facing industries. Access GlobalData’s new whitepaper, China in 2022: the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry, to examine the current situation in Shanghai and other cities in China, to better understand the worst-affected industry sectors, foodservice in particular, and to explore potential growth opportunities as China recovers. The white paper covers:
  • Which multinational companies have been affected?
  • What is the effect of lockdowns on foodservice?
  • What is the effect of lockdowns on Chinese ports?
  • Spotlight on Shanghai: what is the situation there?
  • How have Chinese consumers reacted?
  • How might the Chinese government react?
  • What are the potential growth opportunities?
by GlobalData
Enter your details here to receive your free Whitepaper.

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