How long will the coronavirus pandemic last along with the deep economic recession it has created? I am a pessimist and fear a protracted tragedy.
Consider three possible scenarios. First, with effective medical and economic responses, the crisis might rise explosively and then rapidly peter out. A deep recession in the first half of 2020 could be followed by a sharp V-shaped recovery.
In Scenario 2, the virus and recession will continue till September, with correspondingly higher deaths and bankruptcies. The economy will suffer long and hard despite government rescue packages. GDP growth may recover a bit but still be hobbled till end 2020.
In Scenario 3, the virus will take ages to control, and may return in a second wave even after it initially seems controlled. If so, the crisis will continue into 2021, wreaking more havoc than the 2008 Great Recession.
I believe the chances of Scenario 1 are no more than 30%, of Scenario 2 maybe 60%, and of Scenario 3 maybe 10%.
The US hopes for Scenario 1. US Vice President Mike Pence admits that US deaths could skyrocket to 240,000, and unemployment to tens of millions. But after that he expects infection, deaths and unemployment to plummet, as has happened in China, so that the US recovers sharply after July. Investment banks like Goldman Sachs have also projected a deep recession followed by a sharp recovery in the second half of 2020. If so, the world economy could normalise, maybe even boom, by December Scenario 2 is gloomier and twice as likely. As in Scenario 1, infections and deaths will grow explosively but not die out quickly, and so will not spur a quick economic recovery. A few countries have high-quality government capacity combined with an educated and responsive citizenry. These are countries like Korea, Singapore and Japan, where rapid, massive testing, the quick isolation of the infected, and lockdowns plus well-enforced social distancing have greatly slowed infections and deaths. After initial self-denial, China too has followed this similar path, and skyrocketing infection rates are now history. China’s net rate of fresh infections is very low, and deaths have fallen from a peak of over 100 per day to just 3. Chinese factories report that workers are returning to work, and the economy hopes to start humming again in a month or two.
Sceptics suspect China is fudging its figures. It may be misreporting virus deaths as ordinary pneumonia or flu fatalities. Such fudging is hardly unknown in China. Yet independent evidence of dramatic improvements (like pollution in Beijing) is substantial. World metal prices have started rising in the hope that China will recover strongly in late 2020. But Europe is floundering, with infections shooting up in Italy, Spain, France and Britain. This makes Scenario 2 more likely.
However, conditions in India and other poor countries are worse than in richer countries and could ultimately lead to Scenario 3. So far, the main infection zones have been East Asia, the US and Europe. But this may simply reflect higher international travel and good testing facilities that reveal infection rates quickly. Poor countries have fewer international travellers and so may be late starters.
Besides, their governments are often incompetent, callous and corrupt. I do not refer just to India — Iran and Pakistan are worse, and African countries are much worse. These countries gravely lack medical equipment, staff, hospitals or even means of propagating safe behaviour like social distancing. Public trust in governments is low, so even good official advice will be ignored.
Social norms and customs in poorer countries encourage massive gatherings of people for festivals, weddings and other occasions. In urban slums and villages, four to six people sleep in each hut, making social distancing impossible. Crowded bazaars and workplaces are common. Households in the West may shop once a fortnight and stock up groceries in fridges, but that’s impossible in poor nations.
Middle class households depend on servants for sweeping, cooking and driving. Digital competence is not high enough to facilitate massive working from home for white collar workers. Even relief measures like community kitchens or food depots for the unemployed will create crowds that spread infection. Rural activities including agriculture often require group action. Rural social norms do not include social distancing. Women go in groups everywhere, even for defecating in the fields. Villagers are packed like sardines into buses and tractors for travel.
Maybe a vaccine will come and solve the problem. Maybe high temperatures will inhibit the virus. Yet the chances of a terrible Scenario 3 in India and other poor countries are not negligible. Herculean efforts are needed to avoid the worst.