ONE LEGACY of the covid-19 pandemic seems certain. Governments will end up with a mountain of debt. The IMF estimates that budget deficits in rich countries will average 11% of GDP in 2020, even without containment in the second half of the year. The debt could climb from 105% to 120% of GDP. The good news is that interest rates are extremely low, making debt servicing cheap, and the markets expect them to stay that way. Even so, difficult choices lie ahead. After World War II, when debt also soared, the burden was reduced through faster growth, higher taxation, artificial interest rate cuts and higher inflation, all of which seem unlikely , unattractive or difficult to manage. After the financial crisis of 2007-09, many governments chose austerity. But now voters are likely to want lavish spending, especially on health care. Balancing budgets can be a defining challenge in the post-covid world.
On April 20, oil became less than worthless. The price of the May futures contract on West Texas Intermediate, the US benchmark, fell to -$40 a barrel. With the looming contract expiration, traders with oil for delivery in Cushing, Oklahoma, realized that Cushing may not have space to store it. The June WTI contract price remained in positive territory; ditto Brent, the international reference, which is less prone to storage problems. But both remain nonetheless crushed by the covid-induced collapse in demand. Recent production cuts agreed by OPEC and its allies have failed to halt the rout. The glut may persist through the summer, once again testing the limits of the possible.
One of the reasons for the implosion in oil demand is that people are driving less. It is also a disaster for the automotive industry. As buyers postponed purchases and factories were closed along with the rest of the economy, car sales are expected to fall by a fifth this year. Automakers are burning cash, canceling dividends and begging governments for help. After the crisis, some people may have learned to live without a car. But even if sales pick up, covid-19 will leave its mark, for example, on supply chains. And the loss of profits could dampen investment in the industry’s likely future, electric vehicles (even if they become more competitive). But the industry must take its destiny into its own hands: adapt, invest and consolidate.
Some countries are beginning to lift lockdowns, believing that their peak in coronavirus cases has passed. These include Germany, which seems to have handled the crisis better than other major European countries, and several places in Asia. Some Republican-controlled states in the southern United States are doing the same. It seems much less sensible. The coronavirus is spreading in southern states at a disconcerting speed. America as a whole is far behind the top performers in testing and contact tracing. States that are reopening don’t even meet the federal government’s own criteria for lifting lockdowns, including 14 days of declining cases and positive tests. More worryingly, the demography of the South makes it vulnerable to covid-19. It contains a disproportionate number of older, black, Hispanic, uninsured, unhealthy, and incarcerated Americans. The South could be the region that suffers the most from the virus.
The UN’s World Food Program warns that the number of “acutely hungry” people in the world, most of whom are in Africa, could double this year. Covid-19 is putting a strain on the continent’s food systems. The World Bank predicts that sub-Saharan agricultural production will fall by 3 to 7% in 2020. Some countries are curbing food exports and some supplies are stuck in congested ports; the region’s food imports could fall by 13-25%. But a bigger threat is a drop in income. As economies shrink and shutdowns shutter informal businesses, up to 80 million Africans could see their incomes fall below $1.90 a day, according to think tank IFPRI. Lockdowns are also clogging supply chains. More than 50 million children in sub-Saharan Africa are already missing school meals.