When it comes to economic upswings, the past is rarely a good guide to the future.
Nothing about the way the world looked before the financial crisis, with mostly stable politics and economic exuberance in major parts of the advanced world, could have provided even a remote signal about the key traits of the past decade.
But even in the depths of an unprecedented recession, triggered by the COVID-19 pandemic, three trends seem to be emerging that provide clues about the future.
First, the state is set to play a much greater role in day-to-day life and economic activity, especially when it comes to healthcare provision.
Across the world, the coronavirus pandemic has revealed that:
In response, governments are beginning to reinforce their healthcare systems.
Beyond the near-term surge in spending to beat the virus, expect sweeping regulatory change, more healthcare spending and a more active trade and industrial policy to onshore production of key medicines and equipment.
Improving and reinforcing healthcare sectors across the world should not drag on economic growth
That crises reveal shortcomings that governments address thereafter is not really news. The partial repair of the global banking system after the 2008/9 financial crisis is a case in point. However, there are crucial differences between now and the 2008/9 experience.
Unlike repairing the financial sector, which required growth-sapping increases in regulation and capital in the banking system, improving and reinforcing healthcare sectors across the world should not drag on economic growth.
With no past excesses to deal with, there is no payback in the years to come. No boom, no bust. Meanwhile, building a more resilient healthcare system will involve higher capital investment – in hospitals and factories – and more spending on research, doctors and nurses. That should be good for economic growth.
Second, expect accelerated deglobalisation in goods trading.
Frustrated by slow growth in the post-Lehman world and the increasingly visible costs borne by the losers from trade and immigration, rising economic nationalism had already started to put globalisation in goods trading into reverse in recent years.
US-led protectionism under the banner of President Donald Trump’s ‘America first’ trade policies had triggered a trade war with China.
In Europe, the UK’s decision to leave the EU will raise trade barriers between the world’s fifth-largest economy and the world’s largest single market.
And in Asia, an ongoing dispute between Japan and South Korea extends well beyond trade and is rooted in the messy legacy politics of World War II.
Now, reacting to the disruption in global trade flows and supply chains, manufacturing and production industries will shorten and diversify supply chains further, as well as raising inventories.
As they forego some of the earlier gains of globalisation, some trade-orientated sectors will lose a bit of momentum in line with a slowdown in trading in goods.
A public policy response to ‘onshore’ strategic industries and produce vital medicines and equipment at home will add to this trend of deglobalisation in trading in goods.
Third, expect innovation to accelerate.
A crisis can be the mother of invention. The coronavirus shock is likely to spur innovation in many fields, ranging from a more efficient use of labour and communications technology to increased use of 3D printing.
Many companies that have already used such technologies well in recent years, especially those in the US tech sector and in high-end European manufacturing, have vastly outperformed their peers.
If working habits change permanently, especially working from home, that will further raise demand for technologies that facilitate remote working.
Expect higher investment in the years to come as many companies upgrade their capital stock and adjust working practices. This was slowly happening anyway, but now it will happen faster.
Robotics, 3D printing, remote technologies facilitated by cloud computing – these will soon become the standard for many more companies and workers.
In the long run, the resulting jolt to productivity from faster innovation may be stronger than the drag from deglobalisation in goods trade, as long as governments do not turn away too much from market-based models.
The critical point is that, as long as many societies remain open to the sharing of ideas, globalisation may continue to flourish, but in a more nuanced form.
As we enter even further into the age of information, globalisation may take the form of increased sharing and pooling of ideas.
Coupled with revolutionary production technologies such as advanced robotics and 3D printing that make it cheap to manufacture items locally or even at home, consumers will benefit from increased trade in blueprints rather than in goods.
Technological advances may make onshoring more cost-efficient that importing.
As these trends play out, we will likely see winners and losers within and across economies. On a sector basis, the post-coronavirus recovery will involve structurally higher growth for healthcare, technology and for the manufacturing of machine tools and advanced manufacturing equipment.
Against these positive trends we will likely see structurally weaker growth in travel, shipping and traditional store retail.
We may also see interesting distributional trends in commercial real estate, with slower gains in retail and office space set against faster growth in industrial space and warehouses.
Across countries, the winners will likely be those nations with stronger legal systems and transparent institutions that will allow them to benefit the most from enhanced trade of information.
Open societies, both advanced and emerging, will do well. Closed societies and those with less-than-transparent institutions, including the likes of China and Russia, will find the new situation less favourable.
An event on the scale of the virus pandemic and the recession will almost certainly have profound economic, financial and political effects that will be felt for a long time.
No one can say for sure what is around the corner. However, economic logic and the lessons of history suggest that the global economy could look very different during the post-coronavirus recovery.
Kallum Pickering is senior economist at Berenberg Bank
This article was taken from the June/July 2020 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membershiphttps://www.treasurers.org/membership/become-a-member/eaffiliate