A Vaccine for Recession

Belgius Capital Commentary

Belgius Capital

A Vaccine for Recession

As economies enter into recession and with some forecasting a depression, businesses are hoping that a potential vaccine will get us back to where and how we used to be. We all know now that an early remedy is beginning to look like wishful thinking.

We should also know that any COVID-19 vaccine out there has no guarantee. None. What we do know is that any vaccine should be tested for the duration of a lifetime. Yes, it means it should be tested for 60 to 70 years, or an average person’s life span. A look at the medical history of vaccines tells us that some of the disturbing side effects come later in life – and that is usually mid to later life. So, any momentary gain in the quest to expunge this virulent virus from our system will likely take its toll later on.

Yet as we pin our hopes on, and despite all the hoopla about a potential vaccine, no cure or treatment can change these current realities today:

  1. Consumer confidence is at its lowest, shifting from confidence to caution as people save more through uncertain times compared to the worry-free spending of a pre-pandemic threat;
  2. Economic uncertainty slowly ripples to more resounding and bigger uncertainties. No guarantees that we will be back in business the way we used to be – as credit scrutiny tightens, incomes decline, unemployment rises and risks become more apparent;
  3. Consumer behavior has changed. People dine out less; they just buy grocery essentials and seldom go ‘fashion’ shopping since there is limited social prospects or opportunities to impress or dazzle. That means that businesses that have a fixed cost during pre-COVID days will not survive on much lower revenues and may have to close.
  4. Assets will be reprised to factor in diminishing values. If values are based on revenues, we all know that these assets are overvalued and need to be reprised to reflect collapsing values. Bad for banks who extended loans with collaterals that were valued at pre-COVID 19 levels. Bad for landlords, particularly mall owners.

Just like a disease that spreads out exponentially, an economic gangrene is fast spreading through the entire food chain of landlords, banks, local government, employees, and small to medium businesses. When consumers do not spend, businesses will find it difficult to pay rent and mortgages. That means banks also cannot collect, and as a consequence, force them into insolvency. That can ultimately fall on to local government not meeting tax collection targets. Closing of businesses also means fewer job prospects.

We have seen governments praying for a COVID vaccine as the most likely solution and salvation to this economic mess. From Trump to other world leaders, pinning their hopes and prayers on a pharmaceutical company to save their administrations – we do not see a vaccine for this recession.

Only an economic approach and a policy direction can provide a cure against recession. And like its medical counterpart, it may take years before they realize and be able even to get it. Meanwhile, the catastrophic consequences of lockdowns are gradually becoming apparent, creating potent political and social tensions that could become deeply troubling later this year as the USA Presidential election looms in November.