In previous contributions about the economic impact of COVID-19, I have always claimed that such a situation is best tackled collectively and not individually, and as such the world needs statesmen not politicians to take on the leadership role. Unless the situation is tackled collectively, we run the risk of having segments of society and segments of the economy that would lose out very badly.
Before we go into who could be the losers and the winners in the world that will emerge once the pandemic is brought under control, we need to understand how quickly the global economy suffered a meltdown in the last weeks.
The meltdown has been so severe that many are asking whether there is further for the global economy to fall and whether we will ever get out of it.
The numbers are simply shocking. Just three-and-a-half-months ago there was an air of optimism as financial markets had just experienced their best year in 10 years. Today unemployment has shot up in most countries, governments are pumping in money into their economies like never before, and the global economy can be described as being in a state of paralysis.
There is a risk that the European Union would implode if governments do not reach an agreement on how to work together to tackle the crisis. The world could be facing another debt crisis in Africa, which could lead to famine and further migration towards Europe. Some analysts are forecasting that both the Chinese and the US economy may be contracting by around 30 per cent this year.
Governments are in a Catch-22 situation. The more they seek to control the spread of COVID-19, the more damage they inflict on the economy. This is why they cannot go it alone.
No one knows in which direction the situation will develop
When there was the last economic crisis, governments had agreed to cooperate. Cooperation among governments is today conspicuous by its absence.
One of the expressions that Italians have been using these days has been andrà tutto bene (things will turn out all right). One certainly hopes so, but the world the day after coronavirus will not be the same as the day before coronavirus. Someone did say that there may not be a return to normal, if the previous normal was the cause of the problem.
The mantra about the economy for the last three decades has been smaller government and more globalisation. Three months into this crisis has taught us that the government is required to bail out individual and businesses when the going gets tough and that globalisation has its downside risks.
In such a scenario, it may be difficult to assess who the winners and the losers would be, but there are some questions we need to ask.
As a result of the pandemic, will governments divert more resources to the health sector and the social sector, even if it means less support for economic activity, thereby turning the health sector and the welfare system into winners?
Will governments take a decision to reduce reliance on global supply chains and increase their reliance on domestic supply, thereby turning small- and medium-sized suppliers in their respective country into winners?
Will the European Union governments agree to work together to tackle the economic impact of COVID-19 or will the northern European states seek to continue to go their own way, thereby turning everyone into a loser?
Will the US emerge from the pandemic still as the leading global economic and political powerhouse or would China have overtaken it?
The answers to these questions will indicate who the winners and the losers will be. However we are still far away from seeing the end of the pandemic and no one knows in which direction the situation will develop.