Business·Analysis

Global economy faces fears of a 'lost decade' as COVID-19 cases surge

Attempts to keep the economy open while fighting the coronavirus face new challenges from mutating COVID-19 variants, as the World Bank expresses concerns about financial stress for countries that failed to get on top of the pandemic early.

Vaccine optimism has been tempered by anxiety over the impact of new variants

The doors of a Hudson's Bay department store in Toronto remained closed to in-store Christmas shoppers in December due to strict COVID-19 measures in Ontario's hot spots. Some observers are suggesting that the vaccine rollout may not bring an economic recovery before year's end. (Chris Young/The Canadian Press)

Optimism that the early arrival of a vaccine meant that the global economy would be out of the woods in 2021 is facing a rethink as COVID-19 resurges and mutates.

There remains every possibility that an efficient rollout of the vaccine in Canada and elsewhere really will lead to signs of a recovery well before the end of this year. But there are voices suggesting that the pandemic may hold more bad news in store.

Certainly the year's first day of market trading was less than auspicious.

"Stocks hit records early in the session as investors focused on the rollout of COVID-19 vaccines," Reuters reported. "But investors quickly turned cautious over the path of the virus, which continues to spread amid the discovery of a new variant."

It is never a good idea to put too much stock in a single day's trading or the instant analysis of sudden market moves, but Monday's decline — which saw a fall in the technology-heavy Nasdaq market of nearly three per cent — added to a feeling of unease.

Triggering tighter restrictions

"As the new COVID-19 strain triggers tighter restrictions on economic activity and limits even more the movement of people, it has become increasingly clear that the road to vaccine-induced immunity will now have more potholes," Mohamed El-Erian, a well-known U.S. adviser to financial corporations who is now president of Queen's College, Cambridge, wrote in Tuesday's Financial Times.

El-Erian worried that the struggle to recover from the pandemic's economic impact would lead to misguided efforts by countries toward a "further weaponization of trade tariffs" and a destabilizing polarization in politics and income.

Ambulances line up in London on Tuesday, where a more virulent strain of COVID-19 has contributed to a renewed outbreak and new economic closures. Case and death rates in regions that remained largely open mean places such as Britain have faced growing pressure to take stronger action. (Hannah McKay/Reuters)

Virologists warn of not just a single new strain but a series of continuing mutations as the disease spreads around the world, constantly evolving through accidental changes in its genetic makeup. Then, as we have already seen, the most virulent versions out-compete their viral cousins to sweep back out and around the world.

With luck, the faster-spreading mutations will be no worse — and could theoretically be milder. But some scientists in the United Kingdom have warned that current vaccines may not be as effective on one new variant in South Africa.

The more virulent European version has already turned up in the United States and Canada. As of this writing, the one found in South Africa has not yet been spotted here, but experience with previous transmission waves implies its arrival is inevitable.

Meanwhile, the idea that countries and regions can fight the virus while keeping the economy intact is facing contradictory evidence.

Case and death rates in regions that remained largely open mean places such as Britain and the U.S. have faced increasing public pressure to take stronger action, even as the economy weakens. Places that imposed severe lockdowns earlier in the battle against the pandemic, such as Australia and China, have seen relative economic success.

Police patrol the streets of Johannesburg on Jan. 1 during a curfew imposed after a new variant of the coronavirus was found. Some scientists in the U.K. have warned that current vaccines may not be as effective on the variant in South Africa. (Siphiwe Sibeko/Reuters)

World Bank worries about debt, education breakdown

China's economic data is commonly disputed, but the World Bank suggests growth in the country will rebound to about eight per cent this year.

In its newly released Global Economic Prospects report for 2021, the World Bank fears a lingering impact from the virus — what it warned could be a "lost decade," especially for countries that failed to get on top of the pandemic early.

"Many countries are expected to lose a decade or more of per-capita income gains," the World Bank report said. "Downside risks include the possibility of a further resurgence of the virus, more severe effects on potential output from the pandemic and financial stress."

Besides the immediate damage to the economy caused by interruptions to trade, domestic commercial activity and job losses, the World Bank worries that such factors as a huge piling up of public and private debt and a breakdown in education will lead to a prolonged deterioration in economic prospects.

A nearly empty Pearson International Airport in Toronto on Dec. 30. In parts of Canada and in the U.K., calls for stricter measures — including more severe limits on travel intended to combat the spread of COVID-19 — make hopes for an economic rebound in 2021 seem less certain. (Carlos Osorio/Reuters)

In parts of Canada and in the U.K., calls for stricter measures — including more severe limits on travel intended to combat holiday-induced spread and growing pressure on hospitals — mean earlier hopes that the autumn rebound would continue into 2021 seem less certain.

Although they may be distorted by the holidays, jobs data for both the U.S. and Canada are due on Friday and will offer the freshest possible update on whether the slow but steady uptick in the Canadian economy has stalled.

Gross domestic product figures released two weeks ago showed that growth has continued to creep up ever since April's big dip. If that continues, it won't strictly be a V-shaped recovery, but maybe a V written by a four-year-old that stretches out a bit too far to the right.

That may have changed. The GDP data was from October when everyone was far more optimistic, whereas Statistics Canada collected the December jobs data that we'll see on Friday just weeks ago.

Those employment figures may offer a first hint if the right-hand bar of the V has jogged down, making it into something closer to a W — the potential indicator of a double-dip recession.

WATCH | Making vital supplies became saviour for manufacturers during pandemic:

Making vital supplies during the pandemic became a saviour for Canadian manufacturing

The National

2 months ago
2:09
As the pandemic ramped up, Canada's manufacturing sector nimbly shifted gears and started making products to keep people safe from COVID-19. Even among manufacturers, it reminded people what happens when a country makes its own necessary goods. 2:09

Follow Don Pittis on Twitter: @don_pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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