The contagion curve has already hit the UK, Spain, France, Germany and even the US, and honestly it would seem inexplicable if it stopped miraculously. Therefore, in the wake of Italy, these and other countries will be forced to launch measures to contain the spread of the virus. Among these, we believe that the long-term lockdown will be taken into consideration.
But what would the effects be on the global economy? Even before the markets that may reflect investors' fears and greed, what would be the real and structural consequences? The tourism sector is abundantly razed, there are no drops, albeit serious, of the turnover of 20, 30, 50%.
This is a proper eradication of the tourism and hospitality businesses. Same issue for non-essential consumption that was limited through law decrees, or because of mistrust of people who postpone their purchases both to limit contagions and to maintain liquidity in a moment of economic uncertainty. Faced with a drastic drop in demand, what is the point of keeping a production unaltered that is not known when it will be disposed of? So the FCA giant announces the closure of its factories for some time and the stop of the production and several multinationals have shut their local stores. The entire economy is affected by this pandemic, even the communications sector is in trouble, especially when it is supported by advertising, unlike streaming services such as Netflix.
The performance of the financial markets
What we have seen so far is still nothing compared to what we will see in the near future. Markets have been growing for 10 years, the US S&P Index rose 3.5 times since 2009 lows. A reversal, a correction, but also an end to the economic cycle was foreseeable and natural in this period or in the near future. 20, 25% falls are certainly not the real response of the markets to the scenario we are on the verge of facing. In 2020 the coronavirus might lead to a global recession unprecedented in recent history, a collapse in profits and margins that might cut several companies off from the market, even large ones. In our opinion the use of liquidity simply in discount companies for the recent drop is not judicious.
The scenario we are currently facing will change the world forever, cutting off certain activities that will not be able to switch to digital while enhancing those who are already digital-friendly. If we were forced to find something positive in this sad story, we would mention the effort to bring 10 years forward the digitalisation of our activities, from home shopping delivery to smart working. Without the spread of coronavirus, we would have seen these effects in a decade.
What if we destroyed everything with nothing to rebuild?
The last two considerations are over the duration of this pandemic and the post-pandemic scenario. Regarding the first, Lecturer Pierluigi Lopalco, epidemiologist of the University of Pisa, expressed himself clearly on the outlook pointing out that predictions "are a bit like the weather forecast, valid only in the very short term". And so those who foresee "peaks" and "flexes" are “bettors”. The reality is that nobody knows when this bad adventure will end. WHO has warned that not even the summer could rescue us. In fact the spread of the virus has hit also countries where is currently summer.
However, there is a case that could explain the dangerousness of this virus: South Korea. This country showed the world how fast action, isolation and widespread testing can work ...but might be insufficient! In fact, the cases in South Korea, after being drastically reduced, have started to rise again. Is this the start of a new upward trend? At the moment there is no clue, but we must immediately understand that this virus does not allow us to lower our defences even for a moment, and therefore, it is insane making predictions about when it will end.
However, a similar trend has been unveiled in a research by Neil Ferguson of Imperial College, on behalf of British and American governments. This study discusses a scenario of "mass quarantine" very extended over time to face the rising epidemic of COVID- 19. To avoid the worst, the most effective solution could be to continue with collective isolation until July. Then stop it for a month. Then take it back for two months. Then stop it for another month. Then take it again for two months. This measure would weaken the epidemic, but even before the disappearance of the virus, it would seriously impact not only the economy of the countries involved but also the wellbeing of many people.
Finally, we end this paper not with a statement but with a question. The current scenario is rather similar to a war, both for the inevitable number of victims and the devastating social, economic and political consequences. At the end the world won’t be the same anymore. But what we would ask to ourselves is: unlike a war that physically destroys everything around us, what will there be to rebuild, at the end of it?
