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

AuthorDamir Tokic
Date01 July 2020
Published date01 July 2020
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,
Damir Tokic, International University of
Monaco INSEEC Group, Rue Hubert
Clerissi, 98000, Monaco.
Email: dtokic@inseec.com
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.
COVID-19, economy, long term consequences
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 virusessentially 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 lockdownis
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 curvein 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-shaperecovery 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-shaperecovery 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 cyafter the virus disap-
pears. The Lcasescenario 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;31:914. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals, Inc. 9

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