Why we aren’t going to be ‘roaring back’ to life

When asked about the world economy after COVID-19, the U.K.’s Boris Johnson said that there was “absolutely no reason why economies worldwide should not come roaring back.” This was an extraordinary statement, and the prime minister obliged his audience with an explanation: “This is unlike 2008, there isn’t a systematic problem within the economy.” I disagree.

First, we can easily see that in some countries, like Turkey, the pandemic-induced sudden stop has exacerbated the existing systematic problems in the economy. Second – and this is where it gets interesting – recovery depends on a return of consumer confidence, which is very difficult to foresee. Hence, “roaring back” is not up to the decisions of a handful of politicians, but on the confidence of millions, no billions, of consumers across the world. And there we may have a problem in some countries. Let me elaborate.

About a month ago, there were about a million COVID-19 cases around the globe. As of May 1, the total number has passed 3 million, more than a million of whom are in the United States. In Turkey, the number has risen from around 15,000 to 115,000 between April 1 and May 1. Although the rate of infection has started to subside, the extent of the economic damage is becoming more and more visible. That’s why the focus is now shifting from lockdown towards reopening without triggering a second wave.

Looking at the U.S. economy, unemployment figures released this Thursday indicate that more than 30 million Americans have filed for unemployment benefits. One might reasonably guess a thirty percent drop in American GDP in the second quarter of 2020, which comes right after the five percent decline in the first quarter. No wonder that, from International Monetary Fund (IMF) chief Kristalina Georgieva to Fed governor Jerome Powell, we are hearing the same ominous words: “Not seen since the Great Depression.”

In Turkey, the unemployment figures are trailing behind, yet our most recent retail confidence survey at the Economic Policy Research Foundation (TEPAV) shows that in total, 72 percent of retailers closed their shops either totally or partially, laying off their workers. Some 22 percent shut their establishments completely, while 50 percent are waiting to reopen. Looking at these numbers, it is clear that the country cannot sustain lockdown for much longer.

Yet all this talk about reopening is missing the essential element: Consumers returning to their pre-COVID-19 habits. Politicians can allow shops to reopen, but they cannot make people go shopping. They may try to encourage spending here and there, but this is notoriously difficult, and even if it can be successful in some countries, we are unlikely to see a successful, coordinated effort across the world.

So, it’s up to consumers to decide when to jumpstart economic activity again, not politicians. Think about it: When will you send your child back to school? When will you dine out again? Will you take a vacation this summer, and if so, where? Johnson may assume that these things can just pop back into place, but not everyone has the deep savings and forward planning capacity needed to get back to old habits.
Having said that, I can see countries with more transparent COVID-19 responses and strong social safety nets may perform something of a roar while getting back to business. Most of the world, however, is going to have to climb out of a very muddy hole.