4 of the G7 could follow China & Italy.
- As with most infections, it is not the pathogen that does most of the damage but the reaction to it.
- This is proving to be the case with Covid-19 as it is the efforts to contain it that have serious (but short-lived) economic implications as opposed to the deadliness of the virus itself.
- The data is not encouraging.
- It was on the 23rd of February that Covid-19 began to get out of control in Italy.
- The slowness of the Italian authorities to act to restrict movement and the congregation of people is what led to the current situation where Italy is adding around 1,000 cases daily.
- The governments of UK, France, Germany and The USA are extremely reluctant to take these extreme measures given the impact that they would have on the economy.
- China (and now Italy) have been forced to take these actions and China has demonstrated that these measures are largely effective as its new case numbers are now in the tens rather than the thousands.
- Many of the borders between Italy and the rest of Europe have remained open and until very recently arrivals from Northern Italy into the UK have been able to freely mingle with the UK population.
- Furthermore, large gatherings in the UK are still happening (such as the Cheltenham Races where 70,000 people came into close proximity) and these sorts of gatherings have yet to be called off.
- The situation is similar in the USA where large gathering are beginning to be called off but I don’t see either Joe Biden or Donald Trump cancelling their campaign rallies.
- A big issue here is that everything that can be seen now happened two weeks ago as this is how long it seems that the virus takes to show itself and for patients to present themselves for testing.
- Consequently, the impact of the draconian measures being taken in Italy will take at least two weeks to have any impact meaning that there is worse to come.
- Hence, I suspect that governments are going to be forced to take more draconian measures when it comes to restricting movement of the population which is going to have a significant knock-on effect on the economy.
- The largest ever remote working and e-learning experiment is about to begin where I expect that the results will not be very encouraging.
- For the last 7 years Radio Free Mobile has operated in a remote working capacity and has found that a proper office set up with fast Internet, high quality conferencing tools and a peaceful environment are essential to result in high productivity.
- I think that anyone who thinks that working from a laptop on the kitchen counter, sofa or bed results in decent productivity is dreaming.
- Entrepreneurs and self-employed workers have the added incentive of “don’t work, don’t get paid” making them well suited to remote working.
- Employees on the other hand get paid anyway and so have little incentive to be productive at home.
- Therefore, the net result is likely to mean that corporate productivity takes a substantial hit with the entire (or large part of the workforce) at home.
- I am also far from convinced that children watching lessons on a laptop is going to produce the same learning outcomes compared to when they are in the classroom.
- This will mean that e-learning will also come with a healthy dose of home schooling meaning that the productivity of workers with children will take a further hit.
- Adding all of this up results in the expectation that even a partial lock down of four more of the G7 countries is going to have a very sharp, but short-lived impact on the economy.
- This is likely to be realised as the lock-downs come into force and companies start reporting their Q1 2020 figures and guiding for Q2 2020.
- Given, China’s trajectory, I think that everyone is likely to be back to normal by the end of Q2 2020 making the economic impact very sharp but also short lived.
- I see further cuts to economic and company estimates coming as well as greater uncertainty in the short term both of which the financial markets hate.
- I am in no way tempted to get back in at the moment.
