The June World Bank Report and its Implications:
The World Bank issued its report on the expected economic impact of the pandemic earlier in June. Unfortunately, the predictions are ominous. Bank economists project the worst economic contraction in decades. They forecast that world GDP faces a 5.2% contraction year over year in 2020. All countries on our planet are economically interconnected. Therefore, all will face difficult times. Western countries will see their economies shrink by 7%, while emerging market economies will reduce their output by 2.5%. European economies will suffer the most, facing a projected 9.1% drop in GDP. However, South America and the United States will face sever impacts as well. They are expected to see 7.8% and 6.1% drops in gross domestic product respectively.
But despite the dire impact of COVID-19, the report holds out hope that economic growth will return in 2021. In fact, the World Bank Report projects a 4.2% growth in global GDP next year. However, the writers of the report relied heavily on the presumption that everything will work out perfectly. They saw world markets reopening smoothly. As they researched and compiled the World Bank Report, they assumed nothing would stand in the way of a complete recovery. Economists assumed that by mid 2020, the world will have completely reopened for the movement of people and products.
Unfortunately, their utopian prediction did not materialize. The facts stood in the way.
The Dilemma of the Pandemic
By the end of March, the world faced a great dilemma. Infections were trending downward. In Europe, they were bottoming quickly and it appeared the worst was over. In China life was returning to normal and COVID-19 seemed to have met its match. Stoic measures had reduced infections to a minimum and the economy was reopening rapidly. However, in much of the world, though infection trends may have pointed downward, countries failed to meet thresholds for reopening their economies.
In our country, the CDC set out five guidelines that would presage that economic activities could safely resume. The recommendations included fourteen consecutive days of downward trending numbers of reported infections. Also, a quantity of tests sufficient to monitor rates of infection and antibodies levels would have to be available. Additionally, a substantial supply of safety equipment and the required number of trained contact tracing personnel were seen as vital. Finally, the hospital capacity to accommodate potential new outbreaks also had to be in place.
While Dr. Redfield recommended that all five criteria be met before the reopening of a state’s economy begins, no state followed his advice. In fact, only three states met four on the five recommendations. Far worse, the remaining forty seven states began to open with 60% or less of the recommendations met. Of these states, half met 40% or less of the guidelines. Shockingly, three times as many states opened without meeting a single CDC recommendation, as opened after meeting four of the five.
The Current Pandemic Crisis
Today the world is back in pandemic mode. As of this morning, the media are reporting that thirty six states are seeing significant increases in daily COVID-19 infections. The most critically effected, California, Arizona, Texas and Florida, are all seeing catastrophic infection rates. Additionally, several counties in Arizona and Texas report ICUs and Emergency Rooms operating at between 97% and 100% of capacity.
However, Florida’s infection rates portend particularly disastrous ramifications. When Governor DeSantis decided to open our economy, the state had accumulated just over 25,000 cases of infection. Further, the daily infection rate hovered around seven hundred cases and tests revealed an infection rate under 4%. My, how that has changed. Seven weeks have passed and Medical personnel have now reported that the number of cases has climbed to 141,000. Additionally, reported cases over the last three days have hovered around 10,000 per day and the infection rate topped 15% this weekend.
However, America is far from alone in facing a resurgence of the disease. China is dealing with a new outbreak in Beijing and over half a million people are reported to be sheltering in place as I write. Also, there are signs that a new wave of infection is beginning to impact several European countries. Simultaneously, countries in South America continue to battle outbreaks and most have yet to flatten the curve.
Medical experts throughout the world have warned that there is no guaranty that an effective treatment or vaccine is on the horizon. They have also stressed that researchers have never developed an effective vaccine in less than two years. Therefore, many have described as unrealistic the possibility that one may be available by early 2021. As a result, they implored us to take precautions. They advised that social distancing, wearing masks and proper hygiene are essential. These are just minimum requirements if we are to stay safe in the midst of this pandemic.
The World Bank Report Has A Positive Twist. You Should Too.
Our leaders faced two facts in contemplating how to proceed in late March. Firstly, many states saw rates of infection trending downward. Secondly, Governors understood that the longer our economies remained closed, the more devastating the damage was bound to be. Therefore, they chose to ignore scientists and listen to economists and financial gurus. Perhaps some even considered that in order to win reelection, they must create an economic revival. Lets hope most were not swayed by such cynical thoughts.
However, we must take comfort in the fact that the very governors most aggressive in reopening are now reconsidering. They appreciate the need to pull back and get the pandemic under control. By doing our part to keep safe, we will further that cause and increase the odds that the economic recovery predicted in the World Bank Report will come to fruition.
We must also consider that the current unemployment rate is artificially high. It will drop quickly as we begin to win the battle with this dreaded disease and the economy begins to reopen safely. In the mean time, as in all major downturns, there will be economic opportunities. Keep an open minded and seek them out. While many will face a loss of wealth, others will create great wealth as well. As has been the case with all past challenges, the American spirit will out. Once again we will be up to the task at hand. Think of this as an opportunity to help your neighbors weather the storm while you find gems amid the rubble.
This too shall pass, so stay positive and look forward to the bright future.
Believe in Warren Buffett’s advice and be optimistic. The World Bank’s forecast for 2021 can become a self fulfilling prophecy. Even though it is based on key assumptions that have failed to materialize, its fate is still in our hands. Stay safe, follow CDC recommendations stringently, and see opportunity where others see only fear. Do your share to be part of the solution and you shall be rewarded.
Andrew Kruglanski, Broker
Ocala Home Guide Realty, LLC
Website: Ocala Homes Online