On 12 May 2020, Corporate Partner Laura Chandler hosted a digital event with special guest William Hobbs, Chief Investment Officer at Barclays, to discuss the impact of COVID-19 on the UK and world economy. When discussing the biggest issues facing these economies, Laura and William considered the short-term and long-term issues.
Short-term considerations
One of the most immediate short-term effects of shutting down large parts of the world economy, is that we are now in what is being termed a record breaking global recession. Laura and William explored how concerned we should be in facing this inevitable recession and what the recovery will look like.
Firstly, unlike previous recessions, such as the 2008 Global Financial Crisis, today's recession was not caused by something within the economic machine itself. This was in fact a self-imposed downturn, as public health concerns outweighed the need to protect the economy at any cost. Secondly, most of the world's biggest economic actors had strong and growing economies immediately prior to this dramatic downturn. Taken together, this means that the recovery from this recession will be far different to the traditional model. The traditional model of the recession see's sluggish growth while endemic issues within the system are rectified and while countries struggle with the long-term effect of weakened economies. It is likely that we will see far stronger growth following this recession when the light is switched back on in the economy.
William noted that the biggest challenge to any recovery would be where the Government decides to lift certain lockdown measures and then later (if needed) imposes them again. In particular, we know certain areas of the economy have been and will continue to be hardest hit e.g. tourism, leisure and hospitality. Whilst other areas of the economy may be able to recover far quicker, only time will tell how well these hardest hit industries will recover. Finding a correct policy balance between protecting public health and protecting the economy will be a difficult challenge for the UK Government and Governments around the world in the coming months.
Long-term considerations
In thinking of the long-term effect on our economy from this crisis, Laura and William explored what lessons can be learned from particular countries which may be perceived to be performing better than the UK. Looking towards Asia, unlike the UK, there appears to be a tendency towards a technocratic approach to Government. Following from their experience with SARS-CoV, these countries are further ahead with their contact tracing and testing capabilities. Undoubtedly the UK has much to learn in this regards and these capabilities would ensure that any future outbreak of COVID-19 or other similar infectious disease could be managed without closing down the economy as a whole.
Laura and William further discussed how we should be looking positively after this crisis and on the economic possibilities before us. This crisis has changed society and our economy, including the way we work and interact with one another. Whilst we may lose some industries to this crisis, we will alsoof course see new talent and new innovation through the need to adapt and change our practices. As they say, necessity is the mother of invention.
It was discussed how it is too soon to predict other longer-term issues such as: whether we should be concerned about deflation with lowering interest rates; what the political ramifications of big Government will be around the world, whether we should be concerned about the growing debt in keeping the economy alive and what will the effect of the crisis be on the housing market. In order to make sense of these questions, we need greater clarity on the roadmap out of the crisis from the Government and the structure of our recovery. It will only be when we are out of this crisis that we will fully understand the toll that this has taken on our economy and what the lasting effects will be.
Laura and William ended their discussion with some thoughts on how to manage during this crisis. William stressed that it is important to be careful about the news sources we read and to constantly critically assess what information we digest. This firm (Mishcon de Reya LLP) takes part in this critical assessment through its Digital Sessions and Barclays UK Investments Insights host a weekly podcast Word on the Street. These are some ways to ensure that we are digesting information which has been peer reviewed and is reliable.
They summed up by agreeing that it is challenging to stay positive within this unprecedented situation we find ourselves in. This is further aggravated by the world's media, which continues to paint a stark view of the UK's economic prospects. William stressed the importance of remembering that humankind is endlessly innovative and resourceful – while things may appear bleak right now, we always find a way.
Please note that the information in this article was correct at the time of the live interview.