Stephen Roach

Opinion | The coronavirus pandemic may cast a longer economic shadow on the US than policymakers think

Mass vaccination does not provide immunity against longer-term economic damage. And research on major pandemics dating back to the 14th century suggests that Covid-19’s impact on the US economy is likely to be far-reaching and profound

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The US Capitol in Washington. The confluence of the second wave of Covid-19 and a double-dip in the US economy has left US policymakers with little choice but to approve another relief package, this time for US$900 billion. Photo: AFP

Stephen Roach

Published: 1:30am, 23 Dec 2020Updated: 2:36am, 23 Dec 2020

The outlook for economic and financial markets hinges on the interplay between two cycles – the Covid-19 cycle and the business cycle. Notwithstanding the true miracles of modern science that we are now witnessing, the post-pandemic economy is in need of more than just a vaccine.

Extraordinary damage was done by last spring’s lockdown. Now, a second and more horrific wave of the coronavirus is at hand – not dissimilar to the course of the 1918-20 influenza outbreak.

In the United States, the adverse economic repercussions are evident in mounting jobless claims in early December and a sharp decline in retail sales in November. With partial lockdowns now in place in about three-quarters of US states, a decline in economic activity in early 2021 seems likely.

The history of the US business cycle warned us of the possibility of a double dip. Eight of the last 11 recessions featured just such a pattern. Yet financial markets still made a big bet on a V-shaped recovery. Investors were lulled into a false sense of complacency by the dead-cat bounce of a 33 per cent annualised surge in real GDP in the third quarter.

But reopening after a sudden stop hardly qualifies as a self-sustaining economic recovery. It is more like a fatigued swimmer gasping for air after a deep dive.

02:26

Demand for free food rises in US as nation’s Covid-19 pandemic crisis deepens

The source of the coming economic relapse is hardly a surprise. It is the echo effect of the first wave of Covid-19. Despite extraordinary breakthroughs in vaccines, therapeutics and treatment protocols, the second wave is far worse than the first in terms of infection, hospitalisation and death rates.