COVID-19 Hits Europe and the U.S Once More. How Will Asian Governments Respond?

·4-min read

The Latest Figures

It’s grim reading once more as the global financial markets become gripped by the 2nd wave of the COVID-19 pandemic.

There had been the hope of a COVID-19 vaccine before the winter months to avoid a 2nd economic meltdown of the year.

Across the U.S, the total number of cases has jumped to 9.12m, with 233k COVID-19 linked deaths.

For Europe, however, the decision to reopen borders and support the economy has been far more damaging.

As at 29th October 2020, France, Germany, and Spain, the worst affected EU member states had reported a total of 3.5m COVID-19 cases.

Back in mid-September, the total had sat below 1m.

With the French and German governments having to reintroduce lockdown measures, the economic outlook looks bleak.

COVID-19 – The Impact and Road Ahead

There had always been a risk associated with reopening too early, particularly without an effective vaccine.

In the interest of supporting employment and the economy, however, governments reopened in the summer.

It didn’t take long for new COVID-19 cases to begin to rise, though in the summer this was not too alarming.

As winter draws in, however, the number of cases has spiked and makes April numbers look minor by comparison.

With containment measures now in place and the winter months ahead, the economic devastation could be far more significant a 2nd time around.

Businesses that managed to make it through the 1st lockdown will undoubtedly struggle to survive a 2nd lockdown.

The recovery in labor market conditions will likely be reversed should lockdown measures be extended.

A jump in failed businesses and layoffs would mean a far slower economic recovery than seen through the 3rd quarter.

The 2nd contraction would be far more significant than the 1st meltdown in the 2nd quarter. More significantly, businesses that do survive will likely be far more cautious in plans to rehire and invest than in the summer.

Without a V-shaped economic recovery, that leaves a greater onus on central banks and governments to take the strain.

Some governments have already extended beyond normal levels that would question what remains in reserve. The same can be said for central banks and monetary policy.

When considering current interest rate levels across key economies, it won’t be long before the ECB, the FED, and the BoE drop rates into negative territory.

Throw in particularly dovish economic forecasts for next year and negative rates may become the new norm…

The U.S Presidential Election

As Europe goes into shutdown mode, the U.S Presidential Election is just days away.

The markets will be looking to see how the U.S responds. Containment measures are likely to be unavoidable. Whether the U.S government will reintroduce stringent lockdown measures remains to be seen, however. It may all come down to who becomes the 46th U.S President.

One can only assume that Trump would push states to remain open at all costs. By contrast, Biden would have little choice but to introduce containment measures. He did, after all, attack Trump in the two televised debates over his handling of the pandemic.

Interestingly, voters could be mindful of this. When considering current labor market conditions, would voters really want a U.S President that would shut down the country?

While Trump had hoped for a pre-election vaccine, it could be the 2nd wave that delivers the keys to the White House.

Looking across to Asia

While the West gets hit by a 2nd wave, Asia has managed to avoid a 2nd wave and the reintroduction of lockdown measures.

This is because travel has been restricted, with governments keeping borders closed for general travel.

The big concern, however, is that governments are beginning to create travel corridors, which could be catastrophic.

A number of Asian countries managed to avoid a full-blown pandemic by introducing early lockdown measures and shutting down borders.

Eagerness to reignite economies heavily reliant upon tourism could send a number of countries into the economic abyss, however.

It is therefore not hugely surprising that the global financial markets are taking a greater interest in COVID-19 once more.

The new norm would certainly become the old norm and borders would likely remain closed indefinitely in a worst-case scenario.

Such an outcome would deliver a 2nd economic meltdown that may see some economies struggle for years to come.

The Vaccine

For now, with all the doom and gloom, the only hope for the global economy is an effective vaccine.

As things stand, however, the more optimistic chatter is of a vaccine before the end of this year. That still leaves 2 full winter months for Europe and the U.S to contain the virus.

Looking back at the 2nd quarter, it doesn’t bode well for Europe and quite possibly for the U.S.

Will governments across Asia take note of the errors made by its neighbors in the West or will the allure of the tourist Dollar be too great?

This article was originally posted on FX Empire


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