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Coronavirus Effects Could Reverberate for Decades

Coronavirus Effects Could Reverberate for Decades

30.04.20

The impact of coronavirus could be felt for decades, as debt burdens rise and people push back from globalisation, comment industry experts. We are also likely to see the biggest fall in GDP since the Second World War, as a result of lockdowns curbing supply and demand, reduced incomes and uncertainty about the future.

As the incoming data continue to crater, the focus will understandably remain on the immediate economic damage that is being caused by virus-related shutdowns. But investors should keep in mind that COVID-19 will have consequences beyond the next year and the effects will continue to reverberate long after the lockdowns are lifted.

Government measures will result in substantially higher national debts. However some countries may be able to gradually reduce their debt burdens, especially ones that issue their own debt as they can keep interest rates low. The virus may result in a pushback against globalisation and multilateralism.

The absence of a co-ordinated policy response to the virus by major economies is already striking. Unlike in 2008-09, when governments and central banks co-ordinated their responses in global fora like the G20, this time measures have been announced separately and co-ordinated on national rather than supra-national lines.

Meanwhile, populist leaders are already using the crisis as a platform to fire up their base and consolidate their positions. President Trump has suspended immigration to the US for 60 days, Viktor Orban has effectively suspended Hungary's parliament as he is ruling by decree and Brazil's president, Jair Bolsonaro, has upped the ante in his dispute with congress by throwing his support behind anti-democracy protests.

It's far too soon to say how these events will develop. But it's easy to see how they could prove to be the thin end of a very long wedge. After all, as the virus fades, the recriminations will begin, providing yet more fodder for nationalists.

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