Reflections on Covid-19 and what has changed because of it
Right across the planet, developed economies have been knocked sideways by Covid-19 and governments policy responses towards it. It is hard to exaggerate the uncertainties that existed immediately after it became clear that a pandemic was inevitable.
The existence of the virus was made public by Shanghai Public Health Clinical Centre on 12 January 2020 when it published to the internet the full gene sequence of Covid-19. Financial markets did not start to take its threat seriously until the end of February. By 24 March, the FTSE100 had fallen by 32% in response to mounting fears that a general economic depression would take hold with very troubling long-term harmful effects on the economy.
The chart below shows, the negative impact on the UK’s economy has been far greater than any other recent experience.
Unprecedentedly, large government interventions have helped ease the crisis but the whole situation is far from stable. Thanks to efforts made by the academic community worldwide, we have a much better understanding of the disease – where, when and how it came into existence and the risks it poses to different age bands and ethnic groups. Treatment methods are improving, and we are getting tantalisingly close to producing a safe vaccine which works well for the most at risk section of the population.
Covid-19 struck asymmetrically across age bands of those infected and has done damage to our economy with almost equal asymmetry.
UK debt has risen sharply because of Covid-19 and I expect it will be “socialised” which is a fancy term for the cost being felt in higher taxes and reduced government expenditure than would otherwise have been possible.
How will Covid-19 end up affecting investors? This remains somewhat unclear but most Bluegrove investors portfolios have recovered back to their pre-Covid levels already but a negative slide in values could easily happen if the flow of health news turns negative again. However, from first principles, the fatality rate of Covid-19 is not severe enough to pose an existential threat to society, business in general or investors.
Optimistically, the best we can hope for is discovery and official recognition of effective life saving treatments plus the development of safe and effective vaccines. Frustratingly, these things are not yet certain to happen but, encouragingly, very rapid progress is being made.