During the early days of the pandemic, government policy was completely focused on reducing the spread of COVID-19 and the best way to do that was to shut down economies and prevent people from mixing. In that topsy-turvy context, falling GDP was a sign of success.
Things are a little more nuanced now that emergency wards are no longer overrun.
Doctors and nurses now know their enemy and have become more adept at fighting it, and people are more aware of the risks and how to stay safe. Or at least, that seems to be the position the West is in.
There is greater testing too, so the ratios of hospitalisations and deaths to reported cases are much, much lower than in March and April. And, of course, the absolute number of hospitalisations and deaths is thankfully well down from the earlier peak.
Meanwhile, governments are getting twitchy about just how much it costs to shut down whole nations for even short periods of time.
This all combines to an uneasy yet perhaps inevitable situation: personal responsibility is at the forefront. Governments and businesses have set a baseline of safety measures and now it’s up to people and families to determine how much social activity they want to risk.
Younger people seem to be more carefree and reportedly account for a lot of the recent uptick in developed world cases. Older people and the vulnerable are no doubt warier.
Governments, meanwhile, will hover in the background silently praying and occasionally shutting down towns and cities that approach dangerous contagion levels.
So, back to economic growth. Economic growth and contagion will be conjoined on the way up as they were on the way down. Any improvement in GDP will almost definitely be accompanied by an increase in reported cases.
Also, it makes sense that GDP in most Western nations bounded back sharply at first before moderating significantly below pre-virus levels.
Older people tend to have all the cash in Western countries, so if a large proportion of those people aren’t feeling confident in going out to as many shops, cafes and restaurants as before the outbreak (or travelling overseas to them), then economies will struggle to return to normal levels of spending.
Some UK businesses appear to think this dampened demand is going to stick around. Government data reported by the BBC shows that companies are planning roughly double the number of redundancies compared with the peak of the global financial crisis.
The numbers come from HR1 forms, where businesses disclose any restructuring that affects more than 20 jobs. Figures like these will no doubt pressure the government to keep the furlough scheme in play for as long as it can.
The pandemic turmoil has yet to be felt in the UK unemployment rate, which has stayed at 3.9%. But it’s expected to rise to 4.1% when the July figures are released.
The Bank of England will no doubt be mulling these figures too (and many other stats). No further stimulus measures are expected, yet we will be interested to hear the tone coming from Threadneedle Street.
For our part, we’re steeled for a bumpy road. The unfettered conditions for roaring economic growth are the same as for a large resurgence in the pandemic. To restrain the latter and partially enable the former a compromise appears to have been struck. This won’t mean cataclysm, but it won’t be an easy bounce back either.