Every economic shock leaves a legacy. The deadly coronavirus will be no different.
The Great Depression spurred a ‘waste not want not’ attitude that defined consumer patterns for decades. Hyperinflation in the Weimar Republic still haunts German policy.
The Asia financial crisis left the region hording the world’s biggest collection of foreign exchange. More recently, the 2008 global financial crisis drove a wedge through mature democracies that still reverberates, with workers suffering measly pay gains in the decade since.
This time it’s a public health emergency that’s shaking up the world economy. In just a matter of weeks, people in affected areas have become accustomed to wearing masks, stocking up on essentials, canceling social and business gatherings, scrapping travel plans and working from home. Even countries with relatively few cases are taking many of those precautions.
Traces of such habits will endure long after the virus lock downs ease, acting as a brake on demand. On the supply side, international manufacturers are being forced to rethinkwhere to buy and produce their goods — accelerating a shift after the U.S.-China trade war exposed the risks of relying on one source for components.
In the white-collar world, workplaces have amped up options for teleworking and staggered shifts — ushering in a new era where work from home is an increasing part of people’s regular schedule.
“Once effective work-from-home policies are established, they are likely to stick,” said Karen Harris, managing director of consultancy Bain’s Macro Trends Group in New York.
Universities stung by travel bans will diversify their foreign student base and schools will need to be better prepared to keep educating online when breakouts force their closure.
The tourism sector is seeing the most drastic hit, with flights, cruises, hotels and the web of businesses who feed off the sector struggling. While tourists will no doubt be eager to explore the world and relax on a beach again, it may take some time before the industry that hires about one in 10 people recovers.
The virus has also turned the economic policy outlook on a dime and created new priorities. Central banks are in emergency mode again, while governments are digging ever deeper to find money to prop up struggling sectors. Hygiene is soaring up government and corporate agendas — indeed, Singapore already plans to introduce mandatory cleaning standards.
“This outbreak is unprecedented in terms of its nature of uncertainty and associated social and economic impact,” said Kazuo Momma, who used to be in charge of monetary policy at the Bank of Japan. Tighter borders controls, wider insurance coverage and lasting changes to working and commuting patterns will be just some of the micro-economic changes that will endure long after the virus, Momma says.
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