Download Christopher Granville's Global Political Driver note "Pandemic confidence gap"

Economic re-start will not have to await a vaccine but will be slowed by lockdown exit obstacles

  • Pandemic fundamentals’ underpin our House View that economic relief will not come before Q4, pointing in turn to further financial market weakness.
  • In Europe and the US where the raging epidemic dominates attention, the initial epidemic curve is set to peak in Q2: but the exit from lockdowns and return to normal economic activity will be stickier.
  • There are two reasons for this: the first, and more obvious, has to do with health policies; and the second, at least as important in our view, with public confidence.
  • The policy conundrum hinges on inevitable new infection waves. Relaxation of lockdowns and social distancing will therefore be gradual and partial.
  • Public health containment policies are, in principle, the key to the paceof the economic re-start. But even the South Korean model has been overtaken by the scale of the ‘western’ epidemic: the result is poor credibility and opacity.
  • Hopes for new drug treatments seem well based; but decisive breakthroughs by Q3 may be a stretch.
  • Even as the public welcomes lighter restrictions, the fear factor will remain elevated – which is not good for a consumption bounce back.
  • A major aggravating factor will be ‘doubts about the neighbours’, causing persistent border frictions – bad news for sectors like tourism.
  • A key test for public confidence may be authorities’ handling of the new infection waves – a Q3 test in the Atlantic pandemic calendar.
  • We are not saying that lockdown exit blockages are insurmountable before mass vaccinations launch in, say, mid-2021: but only that the public health environment will remain tough for two more quarters.