Long‐term consequences of the 2020 coronavirus pandemics: Historical global‐macro context

• Author: Damir Tokic
• Date: 01 July 2020
• DOI: http://doi.org/10.1002/jcaf.22448
• Published date: 01 July 2020

BLIND PEER REVIEW

Long-term consequences of the 2020 coronavirus

pandemics: Historical global-macro context

Damir Tokic

Finance and Economics Department,

International University of Monaco –

INSEEC Group, Rue Hubert Clerissi,

Monaco

Correspondence

Damir Tokic, International University of

Monaco –INSEEC Group, Rue Hubert

Clerissi, 98000, Monaco.

Email: dtokic@inseec.com

Abstract

The COVID-19 pandemics is likely to accelerate the trends of de-globalization

and de-dollarization. Over the long term, the major financial consequence is

likely to be the accelerated trend of rising inflation and long-term interest

rates. More broadly, the post-pandemic environment will likely encompass dif-

ficult longer-term economic and geopolitical challenges. Alternatively, the

COVID-19 pandemics also creates an opportunity for building a new trend of

more sustainable globalization.

KEYWORDS

COVID-19, economy, long term consequences

1|INTRODUCTION

In response to the outbreak of COVID-19 (novel corona-

virus) in January 2020, the governments of the

210 affected countries implemented the various levels of

social-distancing policies and stay-home orders to stop

the spread of the virus—essentially shutting down the

global economy. Additionally, the policymakers in large

countries, led by the United Stated and the Europe, pas-

sed the extraordinary mix of fiscal and monetary mea-

sures to ensure that the period of “lockdown”is

effectively bridged to minimize the effects of the sudden

economic-stop on social stability and the financial mar-

kets until they return to normalcy.

As of early May, many countries had begun to gradu-

ally reopen their economies, as the social distancing mea-

sures were effective in slowing the spread of the virus—

flattening of the curve. Similarly, the stock markets

strongly rebounded from the lows reached at the “peak

of the infection curve”in anticipation of a gradual return

to normalcy, with the embedded prediction that the

global economy would likely strongly rebound in the

third quarter of 2020 (Q3), after the sharp and short

recession in the first two quarters of 2020 (Q1 and Q2)—

the V-shape recovery. More importantly, the key assump-

tion seems to be that there would not be any major

consequences of the COVID-19 pandemic over the

longer term.

The “V-shape”recovery scenario, thus, assumes that:

(a) the pandemic would be short-lived, 3 months; (b) the

policy mix would effectively bridge the “lock-down”

period and prevent the financial crisis, and (c) the global

economy would return to normalcy (or the pre-

pandemics state) after the pandemics are finished. The

“U-shape”recovery case recognizes the potential that the

pandemics could last longer and that additional stimulus

would be required to bridge the crisis, but the economy

would eventually return to normalcy as the virus eventu-

ally disappears.

The assumption that the CO VID-19 virus would

eventually disappear is reason able, as the vaccine is

likely to be eventually develope d. Further, the assump-

tion that the policy mix will effectively bridge the eco -

nomic crisis period is also reasona ble, given the Fed's

ability to implement an infinite m oney-printing press via

quantitative easing (QE) in ta ndem with the fiscal debt-

monetarization. However, i t is highly questionable and

uncertain whether the glob al economy would return to

the pre-virus state or “normal cy”after the virus disap-

pears. The “Lcase”scenario predicts that the COVID-19

pandemics will have signific ant longer-term negative

geopolitical and economic effect s and rejects the return

Received: 29 April 2020 Accepted: 30 April 2020

DOI: 10.1002/jcaf.22448

J Corp Acct Fin. 2020;31:9–14. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals, Inc. 9