Saturday, October 16, 2021

The Covid crisis: some people think it’s all over … it isn’t


Denial. Panic. False dawn. Relief mingled with a decent dollop of euphoria. Britain’s response to Covid-19 has moved through distinct phases, and there are at least two more to come. Despite the success of the vaccine programme, a look around the world – to India, to Chile, to Brazil, to France and Germany – can lead to only one conclusion: this is not over yet.

The early stages of the crisis are now easy to document. The denial phase lasted from the first cases of Covid-19 being reported in China towards the end of 2019 until the middle of March 2020. Initially, perhaps, some scepticism was warranted because there had been talk of global pandemics in the past that had not lived up to their horror-show billing.

By the end of February, though, it was clear that this one did, but the UK government – in common with Donald Trump’s administration in the US – was slow to act. Financial markets were quicker to enter stage two – panic – and by the time draconian lockdowns were announced they had plunged amid fears that the biggest threat to global health since the post-first world war Spanish flu outbreak would lead to a new Great Depression.

The panic phase, too, was relatively short-lived but involved frantic activity on the part of central banks and finance ministries. Workers left idle due to the enforced closure of businesses were effectively put on the state payroll. Financial markets were lubricated by quantitative easing, purchases of assets by central banks that acts as a form of money creation. The message went out that policymakers would do whatever it took.

Up to a point, this action was a success. The UK economy contracted by a quarter between February and April, but by the end of that period it had started to stabilise. As restrictions were eased during the spring of 2020, there was a sense – fostered by ministers – that the end was in sight. This was the false dawn phase – the time when the opening up of hospitality venues was hailed as independence day and the Treasury announced its “Eat-out-to-help-out” scheme.

By October, the optimism of the summer had been well and truly punctured. When local lockdowns failed to stop the increase in case numbers blanket restrictions were re-introduced by the various nations of the UK. Vaccines were coming but not quickly enough to prevent the NHS from almost being overwhelmed by a winter surge in cases. The country went back into a hibernation from which it is only just emerging.

Hence, the new phase of the response. Judging by the limited evidence available, people are aching for the return of normality and are confident that the vaccine programme makes this year’s opening up safer and more durable than that in 2020. Britain has been a bit slower than the US in freeing up the economy, but if the experience across the Atlantic is anything to go by – retail sales were up by almost 10% in March – the UK is on course for a mini boom in the next few months. Growth forecasts for this year are going to be revised up – perhaps sharply.

This phase will not go on indefinitely. Even in China, the one major economy that has already surpassed its pre-pandemic output peak, growth has started to ease. Figures last week showed that while the world’s second biggest economy grew at a record annual rate of 18% in the first quarter of 2021, the quarter-on-quarter increase slowed to less than 1%.

It is also obvious – or at least it should be – that Britain is going to be affected by what is happening elsewhere in the world. In some countries – India, for example – case numbers are soaring. In the EU vaccination is only now starting to pick up speed and in many countries infection rates remain worryingly high. In Chile, infection rates are again a cause for concern despite a successful vaccine programme.

So, it is a reasonable bet that phase five of Covid-19 will be a reality check. That could be for any number of reasons: the recovery loses momentum as a result of rising unemployment or as a result of policy mistakes; the markets tumble amid concerns that consumer demand is running ahead of supply; the virus is tamed in the UK but not in other parts of the world and is eventually re-imported.

Of all these risks, the last is the most serious. There has been much talk since the start of the pandemic about the end of globalisation, because there’s been a greater focus on nation states, on domestic production and shorter supply chains. Yet, the past 15 months have also brutally demonstrated just how inter-connected the modern world has become. Some problems are global and demand global solutions: climate change is one; Covid-19 is another.

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In both cases, years of complacency and inactivity mean time is running out. For years, there have been warnings about how ill-prepared the health systems of poor countries are for a serious pandemic, lacking the equipment, the personnel and the know-how to cope. Unless they get help, and get it fast, it will take years not months to immunise populations.

This requires developed nations to replicate the same “whatever it takes” approach they adopted when it came to running their own affairs. Waiving intellectual property rights to allow the scaling up of cheap vaccines would speed up immunisation, for example, even though it means taking on powerful vested interests.

That, though, is a price worth paying because how the advanced world responds to this challenge will have a bearing on the sixth phase of the crisis. As things stand, it will either be recovery or relapse.



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