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Global cost of pandemic estimated at $96tn

“Our health emergency is not yet over and our economic emergency has only just begun.” 

This was how UK chancellor Rishi Sunak prefaced his landmark spending review today, detailing the damage inflicted by the pandemic and his proposals to mitigate its worst effects.

The numbers were as bad as feared. The economy will shrink 11.3 per cent this year — the largest fall in output in 300 years — returning to pre-pandemic levels only in 2022. Unemployment will double next year from its pre-pandemic level to 7.5 per cent. Departmental spending will rise, partly balanced by cuts to the aid budget, but most public sector pay will be frozen. And borrowing this year will hit £394bn — almost a fifth of national income and the highest level recorded in peacetime.

The damage to UK finances may be substantial, but remains a tiny fraction of the huge costs inflicted upon the global economy, as chief economics commentator Martin Wolf highlights in his latest column. 

One study judges the total cost to the US alone as $16tn or three-quarters of GDP: four times the cost of the recession following the global financial crisis. This scales up to a potential global cost of about $96tn.

Martin asks why the cost is so huge given that — in historical context — the current pandemic is a relatively mild one. The answer, he argues, is “because it could be”. 

“Prosperous people can easily dispense with a large proportion of their normal daily expenditures, while their governments can support affected people and businesses on a huge scale. This is also what people expect from governments. The response to the pandemic is a reflection of economic possibilities and social values today, at least in rich countries. We are prepared to pay a vast price to contain pandemics. And we can do so far better than before.”

Martin wolf chart showing Covid-19, Global deaths vs economic loss


Vaccine developments may have broken the 2020 “curse of seemingly endless uncertainty”, says markets editor Katie Martin, but some investors are reluctant to join in with the exuberance. “If the vaccines really do take us back to life as we knew it in 2019, the potential for a return of long-lost inflation and higher bond yields will hold back stock markets’ animal spirits,” she writes.

Emerging markets are set to be a key focus for investors next year following the strong performance of their stocks and currencies in the past few weeks, as well as a comeback for bonds. One market specialist advised investors “to buy anything and everything” in the sector.

Line chart of MSCI emerging markets indices, rebased showing emerging markets are back in the black

Analysts are similarly convinced that positive vaccine trials are a “game changer” for the oil sector. A rally driven by FOMO — or “fear of missing out” — has become a “fundamentally justifiable price rise”, said one. Expectations are rising that Opec and its allies will delay any increase in production when they meet next week.

Column chart of Brent crude, % monthly change showing Vaccine news trigger one of the largest oil rallies


The UK’s Virgin Money became the latest bank to flag fears of loans turning sour as it set aside £500m and warned against vaccine-led euphoria about economic recovery. “There will be a sentiment benefit in 2021, but it may not play through very quickly. We feel there is a period where consequences of Covid will play out before the benefits,” said chief executive David Duffy.

The pandemic-induced acceleration of digital payment has increased opportunities for new types of cyber crime. Scammers are becoming more inventive: one attempt looks like a quiz to test people’s knowledge of the virus but actually gathers information linked with online transactions. Read more in our Special Report: Cyber Security: Internet of Things

The latest initiative from the stricken airline industry is a “health pass” offered by United, Lufthansa, Virgin Atlantic, Swiss International and JetBlue to prove passengers are Covid-free before travel. Our Trade Secrets newsletter examines the Asia-Pacific region’s mixed experience with travel bubbles.

Global economy

Weekly US jobless claims increased again, suggesting that increased coronavirus infections and new restrictions were hurting the labour market recovery. Kiran Stacey’s Big Read highlights the challenges ahead for president-elect Joe Biden in distributing a vaccine.

A survey of Europe’s leading industrialists — undertaken before the recent news on vaccines — shows a jump in economic confidence. But while mass unemployment seems to have been averted, the need for redeployment of workers is growing. Frankfurt bureau chief Martin Arnold interviews departing European Central Bank hawk Yves Mersch whose last stand will be to resist any broadening of the bank’s stimulus measures. Separately, the FT revealed the ECB could lift its ban on bank dividends next year.

Bar chart of % of dependent employees showing Europe's use of job retention schemes has fallen but is still substantial

The latest instalment in our Lessons from Japan series offers a warning about post-pandemic boosts for public investment encouraged by bodies such as the IMF. In Japan’s case it did not revive growth or inflation. One think-tanker commented: “This is a demand shock. No bridges are being destroyed. This is not a war. You don’t need to build more.”

Have your say

Coronavirus vaccines mean light at the end of the tunnel at last. But there’s a long way to go before the world can say goodbye to pandemic disruptions. Can governments roll out vaccine programmes swiftly, efficiently and fairly? And who should have priority? Please share your views with us — email us at Thanks.

Mr Happy comments on Retail crisis is the mother of urban centre reinvention

The big problem for the physical retailer is spiralling costs. For the bricks-and- mortar retailer, inflated rents, inflated business rates, increasing labour costs giving part time workers the same benefits as full time employees, high costs of city centre parking etc is creating a perfect storm and destroying retail. Why pay inflated car parking charges and go into town when the same product is found cheaper online and delivered free?

The essentials

The US had its deadliest day in more than six months on Tuesday after reporting more than 2,000 coronavirus fatalities, taking the national death toll to 250,925. Get the latest data on the global trajectory of the disease from our tracking hub.

Talk of Christmas “bubbles” in the UK is usually restricted to cheap sparkling wine but, for this year at least, refers to the temporary festive arrangement of allowing three households to mix in a five-day relaxation of coronavirus restrictions. Business travellers to England may get an exemption from quarantine for short trips.

Final thought

Music critic Richard Fairman looks forward to a series of streamed Christmas choral concerts from London. “Perhaps it was the starvation of the past nine months, but the wonder of the music seems new-minted,” said the event’s artistic director Paul McCreesh.

The Aeolians, a prizewinning university choir from Oakwood University in Alabama, is included in the line-up

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