The first duty of our rulers is to protect our security. So they declare war, mobilize armies and negotiate peace on our behalf. Now, however, they face an enemy they cannot see and do not understand. Being human, they make mistakes. In most cases we have elected them to look after us, and are angry when they fall short.
The recriminations and name-calling have barely started. Government A was at best reluctant to share its experience of the virus with other countries. Government B did not support the struggling states by the sea to its south. Government C was slow to introduce lockdown. Government D initially made light of the virus that had already devastated many other countries. Government E has kept its collective head down and left second-tier officials to tackle the threat (and take the brickbats).
Three of the five are G7 members and the other two prominent among the BRICS (remember them). For all countries, the question is whether Covid-19 will bring us closer together or teach us to look after ourselves first. The international financial system is disbursing monies to support the post-Covid recovery at national level: to fund healthcare, ease the burden of external debt service and shore up the balance of payments.
While we hear the mantra that the global crisis requires a global solution, our hunch is that governments will initially veer towards looking inwards. Having seen selective export bans applied to personal protective equipment and testing equipment, they will produce or at least stockpile their own. Having seen splits within their trade and political groupings, they will be wary of depending on their partner members. The faultlines of the EU have again been exposed and would it not be surprising now if African governments tempered their expectations of the African Continental Free Trade Area? They may want to move on from reciting the size of the new market and it’s combined GDP as if the numbers guarantee the success of the project.
The closing of national borders might have helped to contain the virus, although in some instances the horse had already bolted. Advocates of visa restrictions and immigration controls have been emboldened. Behavioural scientists may have a different take but the virus will have dented the confidence of many people. It would be a shock if, having been subject to lockdown, they quickly rediscover the joy of travelling to exotic destinations. When the flight is short-haul, the issue of social distancing still arises.
Quite apart from the general level of domestic demand, some industries will be particularly wary of their prospects post-virus. Travel agencies, holiday operators, airlines serving leisure destinations, retail parks targeted at tourists and educational establishments dependent upon foreign students all spring to mind.
It may be that, once we have a vaccine for Covid-19, we will forget the deaths it has caused, the fear it has created and the economic dislocation it has brought. This is unlikely. However, government, household, and personal finances have all been hammered by the virus. So even if we have outgrown the virus, we may well not have the funds for the flight and the holiday.
Written by Gregory Kronsten
Head, Macroeconomic & Fixed Income Research at FBNQuest
28 April 2020