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Good news ahead? Why the economic impact of Covid-19 may not be as bad as feared
It seems that every day another news report predicts financial meltdown. Yet there is evidence the economy may bounce back sooner than expected. Here, The Cheerful Times explains why there may be better news to come…
THERE’S an old saying that bad news travels the fastest. That’s because as human beings, we are hard-wired by nature to be receptive to danger.
Think about it. If there’s a lion lurking near a water hole you need to know about it, quickly. The challenge that this creates is that ‘good news’ can sometimes get left behind (along with the truth).
If you work for a major news organisation – whether it’s a broadcaster or a newspaper – then your role is to seek attention. Without viewers, listeners or readers you’re out of job.
One way of grabbing someone’s attention is to scare the hell out of them, hence news agendas across the board can often skew towards the negative. So what does this mean in relation to coronavirus?
3 Reasons to be optimistic
Well, here are three reasons to suggest that the long-term effect of coronavirus on jobs, businesses and markets won’t be quite as bad as we think.
1 – Firstly, we’re told the scale of the economic crisis due to the coronavirus lockdown is greater than the banking collapse of 2008. However, that doesn’t mean it will last as long. In 2008, the financial system itself was bust. If you like, the money pipes were broken and ‘wealth’ that never really existed in the first place was gushing down the drain. But the current situation is different. In fact, 2008 may have ironically resulted in the financial system being better prepared this time around. The pipes are still intact – we just need to switch the plumbing back on.
2 – Secondly, the British public have reacted on mass by dramatically increasing their savings levels and reducing their debts during lockdown. According to the Bank of England, in April alone the public added £16billion to savings accounts, and paid off around £5billion in debt. Of course, this means nobody is spending, which is bad for the economy in the short term. But the bigger picture is that there’s plenty of cash waiting to flow through the pipes, thanks no-doubt in part to the furlough scheme.
3 – Thirdly, there’s been a lot of worry about Government debt being nearly £2trillion, which is greater than GDP (the value of the entire wealth created by the UK economy in a whole year). This might sound like a terrifying situation, but in layman’s terms is no different to somebody on an annual salary of £30k taking out a mortgage of around £30k. In other words, it’s manageable – provided it’s at a sensible rate of interest, over 20 years or more. Rishi Sunak (pictured above) is no fool. He’s ex-Goldman Sachs, and thankfully, he’s not your typical career politician and therefore isn’t afraid to make bold decisions.
However, organisations like the BBC and many other broadcasters nonetheless tend to relentlessly focus on worst-case scenarios. For example, in May, the BBC published the doom-laden headline: “Bank of England warns of sharpest recession on record.”
Whilst that may be accurate (in the short-term), the Bank’s illustration actually stated that the UK economy would return to pre-Covid levels by next summer, adding: “The fall in GDP should be temporary and activity should pick up relatively rapidly.”
So the BBC headline could just as accurately have said: “Bank of England says economy will recover rapidly within a year.“
To be fair, the BBC did qualify it’s headline further down the report, but the casual impression of is one of impeding disaster.
Of course, the Governor of the Bank of England isn’t Mystic Meg. He’s a bloke in a suit called Andrew Bailey, who stressed at the time that he wasn’t making a forecast, just illustrating possibilities.
The Bank’s official Monetary Policy Report stated: “Many other scenarios for the economy are possible.”
So the glass is either half empty or half full, depending on how you read your news.
Interestingly, the tabloid press seems to be far more in tune with its readership over this issue than broadcast media. Both the Daily Mirror and The Sun have been running constructive campaigns to re-start various sectors of the economy. They’ve reported the good along with the bad.
Meanwhile according to the Financial Times, the stock market is on course to record its best quarter in the FTSE All World Index for over a decade.
Of course, nobody is suggesting it won’t be a bumpy ride. There will be unseen challenges and tough moments ahead, but according to the Bank’s illustrative model: “Activity picks up materially in the latter part of 2020 after social distancing measures are relaxed.” The economy will then return to its pre‑Covid level by “the second half of 2021.”
That’s just 12 months away. A single year. Sadly, it won’t bring back those who have tragically lost their lives to the virus, but for the sake of future generations we need to get the economy back in shape.
* You can copy this article using the social media buttons below. Commentary by Gary Thompson, who has previously held senior editorial positions at a number of newspapers.