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Column – The New Economic Normal – Living With COVID: McGeever By Reuters

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© Reuters. People wait to take a coronavirus disease (COVID-19) test at a pop-up testing site in New York City, US, July 11, 2022. REUTERS/Brendan McDermid

(The views expressed here are those of a columnist writer for Reuters.)

by Jamie McGyver

Orlando, Fla. (Reuters) – Central banks are raising interest rates to tackle the highest inflation in decades, economic growth is slowing, recession looms, and financial markets are in a deep funk.

It is this bleak background against which consumers, workers and businesses are coming to terms with the realization that despite successful global vaccination programs and a ‘V-shaped’ recovery in economies and markets, COVID-19 has not gone away.

Of course, the 40 years of high inflation that many consumers are now experiencing largely from supply chain and bottleneck issues are a direct result of the global lockdowns imposed in 2020 to combat the initial wave of COVID-19.

In many countries inflation is approaching 10% and interest rates are increasing accordingly. Canada’s central bank raised its policy rate by a full percentage on Wednesday, and traders are betting the Federal Reserve will do the same later this month.

There is also a loss of production from the 2020 pandemic-fueled recession. Assuming a pre-pandemic trend growth of 2%, JPMorgan economists estimate the cumulative loss of US output and income over the past two years to $1.5 trillion — about 8%. of annual GDP – which they say will be permanent.

He estimates that the UK and euro area equivalent losses are more than 9% and 12%, respectively.

The highly transmissible BA.4 and BA.5 subvariants are now spreading world wide, except in China and its specific zero-Covid policy, a reminder that the virus itself is much more here to stay.

Officials from Japan to New Zealand warned residents on Friday to take precautions to slow the outbreak and help prevent overwhelm health systems, while the White House this week launched a multi-pronged approach to tackle the new variants. Provisional strategy released.

The new waves may not be an economic game-changer, but they will continue to put pressure on activity. The economic crisis will take longer to recover and growth will be slower to recover.

mobility down

Vaccines have greatly reduced the severity of disease caused by the virus, and travel restrictions, quarantine protocols and mask mandates have mostly been removed. Commerce has reopened, and restaurants, sporting events, hotels and airports are bustling in many areas.

Although there is no appetite for the struggle and sacrifice brought by the lockdown, the attitude and behavior of the people has changed. Stores are open but shoppers are not returning en masse; Offices are open but a large number of employees work from home; Trains are running but the number of passengers is less.

“The hope is that we will be back to semi-normal,” said Karim L. Nokli, an investment strategist at asset management firm Schröders (LON:), noting that supply chain issues, labor market distortions, high inflation and behavior changes are now in place. Are permanent. Economical features, not bugs.

“It’s hard to determine, but it will continue to have an impact on the economy. Undoubtedly.”

Graphic: Google (NASDAQ:) Dynamics Data – Schröders

Schröders compiles a monthly ‘Google Dynamics’ index based on Google’s location tracking data and which charts changes in activity around specific areas.

Its July index shows US workplace mobility is down about 25% from the pre-pandemic baseline, which it defines as January 3 to February 6, 2020.

US retail and entertainment activity is down about 5% from the pre-pandemic baseline, the index shows, while Google data shows mobility around public transportation hubs to be down more than 20%.

JPMorgan (NYSE: ) has compiled an index tracking the bank’s business flights over the same day in 2019. It is volatile, and shows a steady improvement over the previous year. But traffic volume has recently and briefly returned to pre-pandemic levels, and for the most part has remained very low.

Graphic: JP Morgan Business Flights

the world has changed

US officials say the new versions now make up 80% of all new COVID cases. Most of them are highly transmissible BA.5 subvariants, which means that infections may increase in the coming weeks.

Daily new cases are passing 200,000 and the seven-day rolling average is rising enough to suggest that a fourth wave of the virus is on the way.

We have seen how the virus affects the labor market. Millions of people have already left the American workforce through early retirement, staying at home for childcare reasons, or opting for more part-time, flexible jobs that are under the official radar.

The labor force participation rate is still more than a percentage point above its pre-pandemic level, which means the jobs market is extra tight. Additional waves of the virus could keep more people at home, further worsening the relationship between jobs, wages and inflation.

Matt Orton of Carillon Tower Advisors, an asset management firm, noted that during the past two years, people are now more confident about making their risk-reward decisions on all aspects of their lives in relation to the virus.

But things will never be the same again.

“Psychologically we have overcome it, but behavior has changed. Things seem more normal, but not completely normal. The world has changed structurally,” he said.

(The views expressed here are those of a columnist writer for Reuters.)

(by Jamie McGyver; Editing by Paul Simao)

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