The next few months will tell us a lot about the shape of the coming global recovery. Despite ebullient stock markets, uncertainty about COVID-19 remains pervasive. Regardless of the pandemic’s course, therefore, the world’s struggle with the virus so far is likely to affect growth, employment, and politics for a very long time.
Let’s start with the possible good news. In an optimistic scenario, regulators will have approved at least two leading first-generation COVID-19 vaccines by the end of this year. Thanks to extraordinary government regulatory and financial support, these vaccines are going into production even before the conclusion of human clinical trials. Assuming they are effective, biotech firms will already have some 200 million doses on hand by the end of 2020, and will be on track to produce billions more. Distributing them will be a huge undertaking in itself, in part because the public will need to be convinced that a fast-tracked vaccine is safe.
With luck, rich-country citizens who want the vaccine will have received it by the end of 2021. In China, virtually everyone will have been vaccinated by then. A couple of years after that, so will the bulk of the world’s population, including those living in emerging and developing economies.
This scenario is credible, but realizing it is far from assured. The coronavirus could prove more stubborn than expected, and the first-generation vaccines may be effective only for a short period, or have worse-than-anticipated side effects.
Even in that case, improved testing protocols, the development of more effective anti-viral treatments, and better adherence by the public and (one hopes) politicians to behavioral guidelines would lead to gradual normalization of economic conditions. It’s worth recalling that the horrible 1918-20 influenza pandemic, which killed at least 50 million people worldwide – many in a deadly second wave of the kind we currently fear today with COVID-19 – eventually faded and disappeared without any vaccine.
But in a more pessimistic scenario, other crises – a sharp uptick in US-China trade frictions, a cyberterrorist attack or cyberwar, a climate-related natural catastrophe, or a massive earthquake – could occur before this one ends. Moreover, even the optimistic scenario does not necessarily imply a rapid return to end-2019 income levels. The post-pandemic expansion – if there is one – may take years to meet the modern definition of recovery (a return to initial per capita income) in the aftermath of a deep recession.
Although the pandemic has underscored the huge problem of inequality in advanced economies, poor countries are suffering far more. Many emerging markets and developing economies will likely be struggling with COVID-19 for years to come, and face the real possibility of a lost decade of development. After all, few governments have the capacity to provide emergency fiscal support on the scale that the United States, Europe, and Japan are doing. Prolonged recessions in lower-income countries will likely lead to an epidemic of debt and inflation crises.
But the COVID-19 crisis could leave deep and lasting scars in advanced economies, too. Businesses may be more skittish about investing and hiring, owing to concerns about a public-health relapse or another pandemic, not to mention the huge political volatility that the crisis has amplified.