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The COVID-19 pandemic: Living through history
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In times of uncertainty, we often look to the past for indications of how events may play out over time. As one of the most influential commentators on geopolitics and the global economy, historian Niall Ferguson spoke to our clients about possible lingering effects of the coronavirus pandemic in a virtual Barclays Asia Forum webcast. In this latest instalment of our “3 Point Perspective” series, he shares his views on how the pandemic unfolded, how we got to where we are today, and what the future may hold.

Not all pandemics are created equal

Pandemics have been a recurrent feature of human history, and like financial crises, natural disasters and wars, they change the way we live. However, it is important to view the current pandemic in a historical context. The Black Death in 1340s was an outbreak that killed an estimated third of the world’s population. By current accounts, COVID-19 won’t come anywhere near that level of mortality.

Bar chart showing issuance in consumer and retail sectors between March 23 and April 17, 2020 compared to same period in 2019 and the prior four week period in 2020.

While the death rate of COVID-19 may not rival the extremes of past pandemics, the economic consequences of lockdowns could have the most significant impact. Shutting down large parts of the US, Europe and Asia-Pacific inflicted a massive shock on the world economy, causing governments to step in with unprecedented policy responses that may lead to lingering unintended consequences.

After the pandemic – slow growth and a “debt hangover”

The economy has begun to recover – fairly rapidly – but it will probably slow and level off before it reaches the pre-pandemic height.

One reason is the US savings rate, which has soared during the lockdown period. Many people, concerned about their future employment prospects, have become risk averse and don’t feel comfortable spending. People are also avoiding crowded indoor spaces, such as shopping malls and restaurants, creating another drag on key social and economic activities that likely will persist until a vaccine becomes widely available.

In Europe, some countries, including Italy, have very large debts that could become a source of instability. Meanwhile, many Emerging Market economies do not have the luxury of accumulating a large stock of debt without bringing their creditworthiness into question.

Historically, there are three ways out of a large debt burden: countries can grow their way out of it, default on part or all of it, or inflate it away. Regardless of how individual economies and governments react, there will be a pretty serious debt hangover after the pandemic recedes, with more defaults likely to come.

The world reacts to shifting supply chains

Globalization was declining long before COVID-19. It peaked around 2007, after which the Global Financial Crisis reduced cross-border capital flows and trade.

Line graph showing increasing market share of private label products between 2005 - 2011

As China and the US remain on opposite sides on the world’s stage, there is a dawning realization among US corporations that relying on China means depending on a strategic rival of the US. In addition, some European countries are asking themselves if it is smart to rely heavily on China.

Technology has also been trending away from extended supply chains and changes in labor costs around the world have made China less competitive. While the pandemic has drawn attention to problems with existing supply chains, a few countries may be able to benefit from this situation. Vietnam and Indonesia are both potential beneficiaries, but so is Mexico.

When it comes to the decoupling of the US and China economies, it is much more possible than some may believe. Decoupling can happen, and it can happen very quickly if it becomes a strategic imperative.

Ultimately,the COVID-19 outbreak has shone a bright light on several weaknesses in global systems. It is important to use the pandemic as a catalyst to address problems that we haven't thought nearly enough about.

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About Niall Ferguson

Niall Ferguson stands at the crossroads of past, present and future. As the author of 15 books, Senior Fellow at the Hoover Institution, Stanford University, a senior faculty fellow of the Belfer Center for Science and International Affairs at Harvard, and Visiting Professor at Tsinghua University, Ferguson is one of the world’s most accomplished historians and provocative commentators on global politics and economics.

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