March 2020
◼ The abruptness and severity of the shock inflicted
by Covid-19 has no equivalent in modern history.
The pandemic’s power of exponentials has taken most
decision-makers by surprise and brought a large
portion of global economic activity to a sudden and
dramatic halt. This has never happened before, not
even during the Great Depression or the two World
Wars. In Q2, global GDP might plunge by 20-30% (Y-o-
Y) and joblessness rise in monumental proportions. A
return to growth in the Autumn is now the best-
case scenario, but it is contingent upon many “ifs”.
◼ Among economists, an overwhelming consensus exists
that the much talked-about trade-off between saving
lives and pursuing economic growth is a false one.
The key reason is this: the economy is not a machine
activated by robots, but a highly complex network of
innumerable interactions between people whose
decisions (to invest, to consume etc) are largely driven
by emotions and sentiments. The inference: economic
activity won’t pick up until the pandemic is firmly under
control and fears abate. In addition, research shows
that the tougher the lockdowns, the stronger the
long-term economic recovery. For policy-makers the
greatest threat lies in the risk of relapse: this would
instantly extinguish resurgent consumer confidence
while crushing the markets still further.
◼ The pandemic has magnified the macro challenge of
social inequalities by laying bare the shocking
disparities in the degree of risk to which different
social classes are exposed. In much of the world a
pattern has emerged: the wealthiest have escaped to
their holiday homes; the middle class hunkers down at
home to tele-work and homeschool, while the working
class (those who still have a job) are not at home but at
the front line working to help save lives (albeit
indirectly) and the economy – cleaning hospitals,
manning the checkouts, transporting essentials and
ensuring our security.
◼ In such a context, it is unsurprising that the risk of
acute social unrest is increasingly plausible.
Rightly, many decision-makers and thinkers are
pondering what might happen when millions emerge
from the confinement with “no jobs, no income and
no hope”. The risk is lower in countries with a strong
welfare system and higher in those without one –
notably in the US where many unemployed people
aren’t even eligible for benefits (but this might change).
◼ Because of the above, monetary authorities and
governments are entering the “Whatever It Takes”
era. They will deploy massive monetary and fiscal
stimuli - policies inconceivable just a month ago are
becoming the norm. In a bid to prevent the deepening
economic recession turning into full blown depression,
governments will increasingly act as “payers of last
resort” to stem the flow of business destruction and
mass layoffs provoked by the pandemic. MMT (Modern
Monetary Theory) – derided in the pre-pandemic era as
a leftist invention - is now all that remains in the
economists’ quiver. “Helicopter money”, i.e. direct
cash disbursements to households, is coming; and it
will be fully monetized, not financed through standard
government debt.
◼ Thinking about a post pandemic economic landscape
and the various exit strategies, consumer response
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represents one of the greatest uncertainties. After such
global pain in terms of lost jobs and reduced income,
we find it hard to imagine a scenario of rapid recovery.
There’ll inevitably be a great sense of caution and
“wait-and-see”, with consumer demand remaining
weak for a long time. For governments, turning to the
printing press will be an exceedingly complex and
potentially perilous exercise to calibrate correctly: with
too little money available, the economy will tank, if
there is too much, inflation will spin out of control.
◼ Covid-19 will accelerate sustainability concerns
and ESG outperformance. First, the evidence, so far,
suggests that ESG have withstood the sell-off better
than most other strategies – they’ve proven more
resilient, which is what sustainability is all about.
Second, we think (without data to corroborate our
conviction), that companies that walk the
stakeholders’ walk will perform better in the post-
pandemic era. They’ve proven to be more benevolent
than others (avoiding lay-offs and providing help when
they could), and thus offering more resilience in the
current and futures crises.
◼ The geopolitical implications of the pandemic will
be profound and far-reaching. Among the most
consequential: (1) A collapse of global governance,
when it was most needed, augurs badly for the
management of future crises; (2) The mistrust and
rivalry between China and the US will greaten; (3) US
standing in the world has taken a beating but the
resultant vacuum will not necessarily be filled by
China’s ascendancy (the country’s recent forays into
soft power won’t last long); (4) The retreat of
globalisation: it cannot be undone, but it can be slowed
down and curtailed as supply chains shorten -
regionalism and localism will be the big “winners”; (5)
The return of the nation-state and big government: in
times of acute crisis, only nation-states remain
cohesive and capable of making collective decisions.
◼ It is in emerging markets (EM) that the risks are the
greatest, while perhaps not from the pandemic itself,
but from its economic and social consequences.
Because of a seasonality effect, Covid-19 may
progress more slowly in EM than it does in rich
countries, but this is irrelevant: EM are already suffering
from major capital outflows, a squeeze in USD funding
and collapsing commodity prices. To illustrate the
severity of the problem: more than 80 countries have
submitted a request to access a USD50bn emergency
finance package set up 3 weeks ago by the IMF.
International organisations are expected to put together
a USD1tr program for EM, but this will fall short of what
is required. Since most of them cannot borrow in their
own currency, nobody will be there to bail them out
(their governments, banks, companies, households).
As economies shut down, the risk of social unrest –
violence and looting – will increase.
◼ There is so much to think and talk about! The above is
a mile-wide inch deep overview. For an in-depth
analysis of any of the bullet points - please contact us
and ask about gaining access to our unrivalled network.
You can start by participating in our MB100 Club Ask
our Experts online conversations on What’s Coming
and How Best to Deal With it. #2: “Helicopter
Money” will take place on Monday 6th April at 17.30
CET.