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The virus remains difficult to control

Even in the most freedom-loving societies there was widespread buy into controls for the initial lockdowns. Now consent is waning.

Even in the most freedom-loving societies there was widespread buy into controls for the initial lockdowns. Now consent is waning.

Charles Stanley

in Features


It’s been another week dominated by pandemic news. Donald Trump’s contentious approach to tackling the disease has been centre stage, with his self-announced triumph over the illness thanks to a couple of drugs that he recommends more widely.

Meanwhile, his opponent in the Presidential race, Joe Biden, puts on his face mask and accuses the President of being too cavalier, whilst declining another debate in person as he suspects the President is still infectious. He wants a more cautious public policy approach to tame the virus.

Since the virus arrived from China, we have argued that markets will dance to the pandemic's tune. We set out early on three virus-based scenarios of future economic and business activity. We argued that a fast V-shaped recovery after lockdown was unlikely, and considered the disease would linger with continued adverse impacts on businesses needing social contact in person.

Recent weeks have reinforced this judgement. There have been pronounced second waves of Covid-19 in many countries that followed World Health Organisation advice and went through the ordeal of national controls. As expected, the lockdowns pushed cases of the disease and the accompanying deaths right down, only to see them pick up again as rules were relaxed.  

As expected, countries are very reluctant to go through another punishing full national lockdown. Our base case assumes a series of rolling local lockdowns of varying intensity, and some national measures that hit entertainment and hospitality most. What we are now witnessing is governments beginning to worry that this intermediate approach is not sufficient.

No clear answer

As they experiment with different mixtures of measures to limit social contact without actually closing down big areas of economic activity, the virus is picking up quite quickly. It is leading the authorities to wish to impose a wider range of local lockdowns – or impose more national measures. Some are now even considering a short-term national lockdown or so-called ‘circuit breaker’, despite the knowledge that this will be very damaging to a number of areas of business life.

These developments continue to harm big cities most. They make the use of public transport increasingly difficult or undesirable for passengers, and greatly restrict the numbers willing to undertake international and tourist travel. As offices remain eerily empty, tourist attractions languish with few visitors, theatres and sporting arenas closed and many events moved online away from the big City venues, the travel, tourism, hospitality and sport sectors remain badly damaged.

When people thought it would be a matter of a few weeks of complete lockdown followed by progressive relaxation they could keep hope alive and plan for a return to their old business activities in due course. Governments also helped them with generous subsidy schemes, employment support and soft loans.

As these businesses contemplate a further period of lockdown, with resumptions to be against a background of one-to-two metre social distancing and more vigorous regimes for cleaning and supervising the conduct of customers, more are likely to decide they need to sack staff or terminate their enterprise. Government support has also in some countries been reduced.

In Europe and the US, we are likely to see a winter of counting the cost. The values of commercial property have still not fully adjusted to the shock of these changes. Property professionals are finding it understandably difficult to provide an authoritative lead on what rents and capital values will be because they are unsure of how much City centre office and shopping space will be needed. Is social distancing here to stay? Will numbers of travellers pick up any time soon? How many businesses will want to go to a more home-based work pattern? How much of the large market share gains made by online retail will be held or extended?

Cities suffer

The City centres will keep their fine buildings, their parks and their historic icons, but they will need to plan and pay for the continuation of so many of the pleasures they have offered that rest on human capital and skill. Everything from opera to football and from fine restaurants to great hotels rests on keeping together good teams of highly skilled and usually well-paid professionals. Doing so in a twilight world of social distancing and partial lock downs is proving expensive and challenging.

Most of the world governments, including the US, are following the global advice to limit social contacts, use protective clothing and face masks, and enforcing various protective measures which are damaging to these exposed business areas.

All remind their populations that their approach to controlling the diseases can only work if people co-operate fully. Police forces are not large enough to be able to enforce every rule on every citizen. As the controls go into great detail over how individuals and families live their lives, it requires consent and willing implementation of the rules.

Even in the most freedom-loving societies there was widespread buy into controls for the initial lockdowns. Now consent is waning, and popular movements to overthrow the rules are gathering more support especially in the English-speaking democracies. If Mr Biden wins the Presidency, he will wish to strengthen the orthodox response to the crisis in the US, but will face an angry Trump minority that wish to overthrow the whole thing. This week news broke of an alleged plot to kidnap the Democrat Governor of Michigan for being too severe in seeking lockdown.

The way these forces play out makes full lockdowns more difficult to impose for any length of time and makes it even more likely we live with the virus for longer. The uneasy compromise will suit neither side in the row. The anti-virus people will believe that if there was full consent for tough measures the virus could be overcome. The freedom lovers will believe they are being asked to pay too high a social and economic price for a policy which damages but does not stop the disease.

There will be bitter political rows between the two camps over each other's conduct and attitudes. Markets need to adjust further to the reality that the substantial sectors exposed to social contact business are in for a hard winter with many more job losses, capital reconstructions and bankruptcies to come.

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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