A look a global governments and COVID-19 – FBNQuest

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As much of Europe and the US struggle with the second wave of COVID-19 infections, it seems a good time to share a few opinions on what their governments and their health practitioners have learned from the first wave that broke in March.

The number of new cases has soared in these countries in recent weeks, due in part to the continued growth in a testing capacity. Fortunately, there has not been a corresponding increase in the number of deaths. This probably reflects lessons learnt by medics in treating COVID-19 during the first wave.

A look a global governments and COVID-19 – FBNQuest Brandspurng
Gregory Kronsten | Head, Macroeconomic and Fixed Income Research, FBNQuest

Unfortunately, we cannot be as generous with governments in the West on their learning from the first wave. They have access to resources beyond the dreams of their counterparts in low-income countries. Before any recent measures, the additional fiscal stimulus in response to COVID-19 in the UK was estimated at 14.5% of GDP in August, compared with 1.5% for the response to the global financial crisis in 2008.

The comparable figures from the same source for the US were 12.1% and 4.9% and for Brazil 5.5% and 0.6%. With the exception of South Africa and a few other states, the figure for African countries would be less than Brazil.

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Governments in Western democracies are admittedly spending again in response to the second wave. They do not want to appear uncaring or faceless and are responding to pressure from the political opposition, the media and the soaring number of policy units. Had it not been for the imminent presidential election, the US Congress would surely have agreed on a second fiscal relief package.

Nevertheless, several of them have acknowledged that their fast-disbursing loan schemes for business are targeted by criminals. In the UK and US for example, there seems little doubt that taxpayers will be footing a very large bill for fraud, yet given the circumstances, we do not see what else the governments in question could have done.

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The reality remains that there is no standard official response to the second wave. This tells us that the jury is out on what was the best response to the first. Some have closed down hospitality completely, some have closed down part of it and others have shortened opening hours. In some cases, schools have been closed and in others, they remain open.

Governments have limited the restrictions because of the cost, and because of worries about compliance. A small minority of the population are opposed to the controls on libertarian grounds and on the basis of assorted conspiracy theories, but the far greater threat comes from fatigue with restrictions. We must now question whether severe lockdowns on the scale seen in France and Spain for example in the first wave are feasible a second time. Is there enough police to enforce the controls, particularly in volatile inner cities? If there are not, are the new controls warranted? The riots in major Italian cities in recent weeks may provide an answer.

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COVID-19 has given a huge boost to forecasting and modelling in macroeconomics, medical science and behavioural science. But governments are guided by at best average advice because to be very blunt, practitioners simply do not really know. Perhaps we should not be surprised, because we are in new territory with the first global pandemic in modern times. The best we can expect is that, as events unfold, our medics and our leaders will learn from experience.

Gregory Kronsten

Head, Macroeconomic and Fixed Income Research, FBNQuest

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