Strategy team: Kevin Gardiner
How much economic damage will the (unsurprising) reimposed restrictions in the UK, Spain and elsewhere do?
Working from home, abstaining from travel generally, and curtailing restaurants’ and bars’ opening hours and services are sure to have an impact. Even if you can do your job fully at home, you are unlikely to spend as much – on the subway, at the station newsagent, the sandwich bar or the distanced drinks with colleagues. The loss of the incidental spending, and the direct restrictions on trading, will hit some businesses hard.
But the restrictions are relatively focused by comparison with the wider lockdowns seen in the spring. Importantly, schools are staying open – limiting poorer children's lost learning and allowing more parents to continue to work. And there are no restrictions yet on work that can’t be done from home.
If fatalities stay subdued, the lockdowns may remain partial. Progress has been made towards a vaccine, though we suspect an early and widespread distribution is still unlikely.
Meanwhile, Western economies had been rebounding faster than feared, recrossing “half-way-down” levels at some stage in the quarter just ending. The upward momentum may help sustain growth through the new restrictions. Fiscal support may be extended.
We think the UK and Europe’s economic recovery will slow, but not necessarily stop or reverse. The US and China are not yet resuming suppression, and global portfolios may be less exposed than more narrowly-focused investments.
Bad news certainly. But probably needed to avoid still worse news further down the road.
Hindsight is a wonderful thing. If governments had been told they could have borrowed this much, they might have borrowed more, but less than they ended up doing, to operate health systems with more spare capacity to begin with. And they would have done so from a larger tax base. But there is just the one reality, and as in Friday’s post, we still think we can see some gaps between the clouds.
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