China is bouncing back from the effects of coronavirus
And the world is watching...
...to see what they can expect from life after lockdown
China’s economy is now functioning at around 90% of normal levels
90% is an incredible achievement
But in practice it will feel very, very strange
A 90% economy may not sound too bad...
...but for many it could be catastrophic
Some of the worst unemployment numbers in this country’s history
6.6m plus people laid off in a single week
It wouldn’t be that surprising if we think we’re kind of through the worst of it...
...we end the lockdown and then actually then things start to get even worse
As global lockdowns ease...
...the economy faces the greatest challenge in living memory
Here’s what you need to know
In China, factories are up and running
Classrooms are full. Restaurants are open
But the economy has not returned to normal
In fact, it’s operating at around 90% of usual levels
And as lockdowns ease elsewhere, this “90% economy”...
...could be what the rest of the world has to look forward to
Regardless of how countries have dealt with the pandemic...
...it’s becoming clear that once businesses have to operate...
...with social distancing in place...
...the economy can be expected to shrink by about 10%...
...whether that is in South Korea, America, or Sweden
But the missing 10% will mean life will feel far from normal
In China, large chunks of everyday life are missing
Having collapsed in January...
...consumer footfall has recovered to about half its previous levels
Hotel occupancy is still down by around 50%
And 75% fewer people are flying
What’s mainly in the missing 10% is stuff that...
...is hard to do if you’re trying to social distance
So, things like restaurants and hotels, theatres, cinemas
And crucially, it’s also the way in which people tend to have fun
So, it’s a world where you work, and then as soon as the day is over...
...you immediately get back to your house as fast as possible
This dip in so-called “fun spending” will continue...
...even after lockdowns are relaxed
In Sweden most people were never asked to stay at home...
...during the pandemic
But Swedish spending patterns over the past few months...
...have mirrored those in neighbouring Denmark...
...which has been under lockdown
Daily restaurant turnover fell by 70% last month...
...as uncertainty over the economy and fear of infection...
...meant fewer Swedes ate out
And while overall Danish spending fell by 29% during lockdown...
...Swedes cut their spending by almost as much
What the evidence suggests now is that actually...
...it’s people’s own voluntary decisions about how they behave...
...which are shaping economies...
...actually more than what the government is telling people to do
The lockdown itself is not really influencing behaviour that much
The true economic impact of imposing lockdowns will take time to emerge
In China it was several months after the lockdown began to be lifted...
...before bankruptcy numbers started to rise
It wouldn’t be that surprising if we think...
...we are kind of through the worst of it...
...we end the lockdown and then actually then things start to get even worse...
...than we had expected
For the past few months the global economy has been...
...propped up by unprecedented levels of state aid
In Europe’s five largest economies...
...one-in-five workers is currently in a special scheme...
...where the state pays their wages
The government has deployed €750bn to sustain companies
That’s unprecedented
The government is going to step in and help to pay people’s wages
It’s only as this support is gradually withdrawn...
...that the wider cost of covid-19 will become clear
It will feel quite sort of uncertain because, you know...
...no one really knows how businesses and households...
...are going to be able to survive weeks and months of much lower incomes
It will impact all levels of the economy
Let’s take a look at one scenario
A small-business owner runs a chain of restaurants
When the pandemic hits, he takes out a loan and furloughs his staff
He is not alone—in March, more cash was handed out to UK businesses...
...than in any month since records began
After lockdown, he re-opens. But business is slow
So, he makes staff redundant
And closes a restaurant as he can’t pay the rent
This has already been happening
In the first quarter of the year, the share of commercial tenants...
...who paid their rent on time in Britain fell from 90% to 60%
With big firms like Burger King...
...admitting they couldn’t make rent on empty restaurants
Without these rent payments...
...his landlord can no longer keep up with her mortgage
And ultimately her bank is left with debt that cannot be repaid
The problem with all of these losses across the economy...
...is that someone eventually has to admit that they are going to...
...bear these losses, and the consequences of that...
...for business confidence and for investment could be very significant
If you are concerned that your customers, or your tenants or whoever...
...is not going to actually be paying the money they owe you...
...then making new investments is not just risky...
...it’s actually completely impossible to price because everything is so unstable
And so the risk of that is that things like investment get cut back massively...
...and that will, you know, that will have very large effects
Key economic factors already indicate...
...that the world is facing a prolonged recession
Already unemployment in America is at its highest rate...
...since the Great Depression
But these losses will not be felt equally
To see how, let’s go back to our restaurant owner
The industries hit hardest by the covid-19 pandemic are labour intensive...
...and rely on an army of low-paid workers
And it is these people who are particularly likely to lose their jobs
In America you are already twice as likely to be made redundant...
...if you are earning less than $20,000 a year, than $80,000 a year
The kind of jobs that won’t exist at all or in much-reduced numbers...
...will be the kind of jobs that are typically done by people who are paid less
Jobs that are done by women and jobs that are done...
...by ethnic minorities more commonly
So, that’s jobs in things like leisure, hospitality...
...retail trade and that kind of thing
And so, I think you could expect unemployment to be...
...really concentrated in certain groups
And these economic changes will shape the political agenda...
...in the post-lockdown world
You could imagine a situation where it becomes kind of commonsensical that...
...the essential workers, who’ve kept the economy going...
...you can imagine a push towards trying to improve...
...their standard of living and standard of work
On the other hand, you could imagine a situation where...
...countries kind of close in on themselves and say, you know...
...we don’t want immigrants because immigrants bring disease...
...and we want to make sure that we have capacity to...
...build vaccines for our citizens, for no one else
It’s too soon to know which way the political tide will turn...
...and each country’s response will be different
But one certainty is that the longer we all have to wait...
...for a vaccine to be developed and distributed...
...or effective treatment found...
...the more pronounced the effects of the 90% economy will be
My name is Callum Williams. I’m senior economics writer at The Economist
If you want to read more about the economic consequences...
...of the coronavirus pandemic, then click the link opposite
