Stock markets are looking forward to a future of speedy, vaccine-driven restoration of normality and resurgent economic growth. Photo / Getty Images
Stock markets are looking forward to a future of speedy, vaccine-driven restoration of normality and resurgent economic growth. Photo / Getty Images
OPINION:
Here come the Roaring Twenties. That, at least, is what stock markets seem to believe.
Economies around the globe are still largely stuck in pandemic panicked lockdown, with the recovery of last summer stalling badly and rising unemployment to match. Yet oblivious to this dismal, present reality, many stockmarket indices are nudging all-time highs.
What they are looking forward to is a future of speedy, vaccine-driven restoration of normality and resurgent economic growth. Markets don't always get it right, but this is one of those occasions when their overriding message seems more plausible than the negativity you see among many mainstream forecasters.
Can it really be that the UK will suffer a worse economic hit from the pandemic than any economy bar Argentina, as suggested by the Organisation for Economic Cooperation and Development this week?
The UK has not had a good crisis, but this seems rather unlikely.
Parallels with the Twenties - when a global pandemic was followed by a boom, at least in the US, if not in war-weary Britain - can admittedly be overdone.
There is still plenty of scope for things to go wrong; it is as easy to imagine the next decade being closer to the deflationary Thirties than the technological revolution, excesses and party atmosphere of the Twenties.
But this is not the collective judgment of markets, where the pandemic is seen as more of a temporary aberration, or interruption, than a defining economic event of negative long-term consequence.
In his spending statement last week, Rishi Sunak, the Chancellor, said the economic emergency had only just begun. Without wishing to belittle the challenges that lie ahead, I'm not sure he is entirely right about this.
Yes, today's pandemic is likely to prove a good deal more economically transformational than the Global Financial Crisis (GFC) of 2008/9, but it won't be nearly as economically harmful. UK unemployment, for instance, rose by far more in the wake of the financial crisis than is likely this time around.
The GFC resulted in a "lost decade" of growth, but beyond attempts to put the banking system on a safer footing, it didn't, in itself, lead to much in the way of structural change. This one, I believe, will prove less economically catastrophic, but more structurally seismic.
It is fashionable among forecasters to cover their backs by pointing to a range of possible outcomes based on different assumptions. The central forecast thus tends to be hedged by "upside" and "downside" scenarios.
The positive news on the vaccine front is starting to make some of this "upside" modelling look rather more plausible than the supposedly more realistic downbeat "central" projections.
UK output doesn't get back to pre-pandemic levels until late 2022, with GDP still 3 per cent lower than it would otherwise have been, even after five years, under the Office for Budget Responsibility's latest central forecast.
In the upside scenario, however, output returns to pre-pandemic levels a year earlier, with little or no long-term "scarring" - that is, permanent damage to productive capacity.
This more optimistic view is based on the assumption of a rapid roll out of effective vaccines, allowing for a faster return to normality than under the central projection. That's precisely what the positive vaccine news of the last few weeks seems to promise.
There is, of course, many a slip between cup and lip. On the evidence of the Government's pandemic response thus far, you wouldn't bet on a sudden outpouring of competence when it comes to delivery of a mass vaccination programme.
All the same, this is a chance for the UK authorities to redeem themselves. Britain's vaccine strategy is the one bright spot in an otherwise shameful series of blunders, and for a change, stands up well to international comparison.
Get this right, and past mishaps will be quickly forgiven. Add in a halfway decent EU trade deal, and there is every possibility of upside scenarios being fulfilled.
Britain's vaccine strategy is the one bright spot in an otherwise shameful series of blunders. Photo / AP
None of this is to deny the scale of the challenges ahead. What the pandemic has done is accelerate the natural passage of economic evolution, cramming several evolutionary leaps forward into just a single year. Socially, politically and institutionally, that's proving extraordinarily disruptive.
Weep for the hardworking employees of Debenhams and Arcadia. As if the dispiriting restrictions on social mingling weren't bad enough, for them, Christmas will also be mired in financial worry and hopelessness.
But don't cry for the brands, which have been ruthlessly run for cash by rapacious owners for decades and thoroughly deserved their fate. Set for fair-weather sailing only, they couldn't have withstood even a force 3 gale.
Their replacement with faster-moving online fashion stores such as Boohoo is simply creative destruction in practice - out with the old, badly run and uncompetitive, and in with the more creative, higher-productivity new. It is unfortunate and unfair that many previously viable businesses will also founder alongside the dross, but others will soon spring up to take their place once demand picks up again.
What's so challenging is the speed at which this is occurring, rather than the fact of it. For lots of households, physical retail and hospitality is an important source of part-time work. Many pensioners, families and students rely on it as an additional source of income.
There are no obvious alternatives, and even where they do exist, workers will frequently find themselves without the necessary skills and experience to easily fill them.
The demise of these businesses also leaves a big hole in the public finances that somehow has to be filled - particularly business rates, one of the main sources of funding for local government. What to do about public transport, much of which has been rendered unviable by the proliferation of home working, and how to put health and social care spending on the sustainably higher footing it plainly needs to be, provides a further lorry load of challenges.
Meeting them is perfectly doable, but governments tread on multiple toes and vested interests in so doing. The economic emergency promises to be over more quickly than anyone dared hope, even a few weeks ago; rather, it is the political and social challenge of transitioning to a new economic order that has only just begun.
