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Learning to live with the virus

One of the remarkable things about the world economy today is the almost-uniform policy being followed by most governments.

One of the remarkable things about the world economy today is the almost-uniform policy being followed by most governments.

by
John Redwood

in Features

21.04.2020

Governments around the world have accepted that trying to slow and reverse the spread of the virus is the overriding priority. They have agreed to impose crippling closures on large swathes of their economies, allowing a surge in unemployment and possible increases in bankruptcies of companies. They have greatly increased public spending to offset some of the economic damage – and have worked closely with central banks to ensure plenty of liquidity to markets and potential lending to business.

President Trump started from the proposition that the cure could be worse than the disease, opting to try to keep US businesses open. The Administration then bowed to pressures or watched as individual states went into shutdown on the orders of State Governors. Today, he has passed the task of unlocking the US to the State Governors, whilst encouraging protests in those states that seem most reluctant to ease restrictions. These tend to be the Democrat states, introducing partisan battles into this national emergency.

November election looms large

The US President has had to watch as his economic strategy and his case for re-election has been badly damaged by the impact of the virus. His positive record on job creation, pay, stock market valuations and general economic wellbeing has been upended by the virus closures. As the incumbent President he got a small poll boost from being the figure in the news talking about how to handle the crisis, but this faded as the Democrat Mayor of New York set himself up with daily news conferences and an alternative view. Choosing now to highlight his impotence to lift the controls, the President throws away a lot of the incumbent advantage on the lead issue.

The virus outbreak brought forward the end of the Democrat contest to choose their candidate. This helped the party, who decided on the more moderate of the two front runners, Joe Biden. Mr Biden currently is ahead in the polls for the Presidential election late this year, with single percentage margins of advantage in most polls. The virus has given the Democrats more of a chance of unseating Mr Trump, whose future now hinges on how people perceive his handling of the virus crisis. Instead of the Trump campaign claiming they made the US great again with a string of positive economic numbers, they will have to claim the damage would have been worse with the Democrats in charge. This is why Mr Trump wants to pin blame for a longer lockdown on Democrat State Governors.

So far, Republican Governors are being cautious about relaxing control in their states, reflecting polling which shows most Republican voters support the lockdowns. South Carolina will open some shops, Georgia barbers and gyms, and Texas some stores. Mr Trump wants to see more action by 1 May, but it is going to be highly selective. Most schools look as if they will stay closed until the autumn. The country is fairly-evenly split between Republican and Democrat Governors, with the Democrats in charge in New York and California, and the Republicans in Texas and Florida.

Brazil and Sweden buck consensus

In Brazil, President Jair Bolsonaro is taking a much-tougher line against world expert opinion than Mr Trump. He dismisses the virus as a “bit of a cold” and argues that all people under 40 should be free to work and do as they wish, as they are very unlikely to catch a serious version of coronavirus. He has fired his Health Minister for wanting to follow global policy and thinks the damage done by the economic measures is worse than the disease. He has had to watch as individual Brazilian states go into lock down under their Governors. He has been encouraging protests against restrictions and attended a rally in favour of the resumption of military rule. It has made Brazilian politics bitter again.

In Europe the Swedish government has taken a softer line on closures and controls, whilst taking care not to confront or disagree with WHO advice and the global consensus provocatively. Sweden is being watched carefully to see if its curve of cases and deaths is worse than countries that have closed all their schools and restaurants which Sweden has so far declined to so.

Data uncertainty

Dr Liam Fox has recently published the nearest to meaningful figures about the incidence of this disease that can be gleaned from official figures which are incomplete and not directly comparable between countries. He has derived the death rate per million people from the virus as all or part of the cause of death. So far, he tells us Belgium has the worst experience at 496 deaths per million, Spain at 440, Italy at 385, France at 288, the UK at 232 and the USA 119. There may be different assessments of the cause of death in different cultures. Some countries may be higher because they first contracted it earlier. These figures do not readily tell us one country has produced a better way of handling the disease than another.

The conclusion remains that there will be a slow and patchy relaxation of controls, confirming there will be a recovery but not a fast V shaped one. Global policy is to learn to live with the virus, not to return to the old normal.

Meanwhile, oil prices drifted down further yesterday with a headline catching plunge in one future contract price in the US into negative territory, as traders rushed to close out positions under time pressures. It was a reminder that the world is approaching full tanks with insufficient demand. It will take time for people to return to their cars and for factories to be back at full burn. OPEC cuts as many said at the time were large, but they were not sufficient in the short term to push the price higher.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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