19 Nov 2020
13 November 2020 | Jupiter Independent Funds Team
“A great day for humanity” exclaimed the banner headline in the Daily Telegraph the morning after Pfizer and BioNTech had announced the successful trial results of their jointly developed Covid-19 vaccine. As last week’s narrative of the US election quickly gives way to the virus again, many see a solution that cannot come too quickly.
In Europe, although so far resisting the pressure, the Italian government faces renewed calls for a second full-scale lockdown; Portugal joins the list of countries declaring a national state of emergency. Europe-wide, economic worries are mounting again. Not content with a second wave, the United States is now seeing its third wave well under way with new Covid cases daily eclipsing both those of the initial spring surge and that of the summer.
In the UK, a strong third quarter economic performance was recorded as GDP recovered 15%, but towards the end of the period momentum was stumbling even before Boris’s short-lived Three Tier restriction system was put in place as the virus made its presence felt again. At the end of September, the economy remained nearly 10% smaller than a year ago despite the bounce-back. Fast data which monitors current economic activity is already pointing towards a reversal in fortunes as Lockdown 2.0 bites, even if the current curtailment regime is less restrictive than that of the spring.
The vaccine is therefore a ray of badly-needed sunlight despite uncertainty about whom this particular one benefits most, what its specific immunity and transmission prevention properties are, and notwithstanding outstanding regulatory approvals and the logistics involved, however long they take, in rolling it out for mass-immunisation with literally global demand.
Markets reacted strongly to some semblance of normal, civilised living resuming. But post-vaccine ‘normal’ will not be pre-Covid ‘normal’; too much water has passed under too many bridges for that. Economic profit and loss accounts will eventually recover, but national balance sheets are a mess, encapsulated in the recommendation in the UK this week that one way to help bring down the burgeoning national debt is a significant rise in Capital Gains Tax.
But change is perhaps more profound: like it or not Covid has become deeply politicised, many see it is a catalyst for a different future. As we have said in these columns before, there is no reset button and we cannot simply erase the last nine months as if they never happened. We all have a debt to society; societal norms are shifting, moreover they are expected to shift; it extends to the corporate world where stakeholders with their invested human, regulatory or commercial capital are increasingly prioritised over shareholders and their financial capital. But alongside yet more monetary stimulus, the massive state fiscal interventions with their extend-and-pretend employment protection schemes and business lifeboats are having an apparent effect as expectations give way from their being temporary necessities to being a more permanent right and an entitlement.
An opinion poll conducted by JL Partners in the UK this week, referenced in both the Telegraph and the Daily Mail after the Pfizer announcement, asked the following: “when a vaccine is rolled out, should existing social restrictions be lifted or remain in place?”. 48% of respondents replied that restrictions should be maintained. Only 37% thought there should be some relaxation; 15% had no idea! At the risk of being repetitive, to get the economy not only recovering but growing sustainably again relies on a self-confident population and a vibrant, optimistic, innovative private sector which is eager to grasp opportunities. That is the engine of future growth, the creator of national wealth.
It was depressing in the summer when we reached a moment in which in excess of 50% of the UK adult population was on the state payroll: employed by the state, on furlough, benefits, welfare or reliant on state pensions. The state has a vital supporting role to play but economic conservatives believe it merely recycles taxpayers’ money, it is not itself innately productive. And yet according to this poll, we have the best part of half the population not actually wanting to return to normal life even though the means are there to achieve it. Let us hope that either the poll is wrong or that attitudes change quickly otherwise we are on a sure path to penury!
Four months after the EU’s €750bn Covid-recovery package was hailed in July as a “New Dawn” when it was finally agreed after yet another row, it has still not been ratified by national governments and the EU Parliament. Under the circumstances one might have thought it would be all hands to the pumps to help the listing ship. That is not how the EU works. Complicated by simultaneously having to approve the new €1.07 trillion 7-year budget, the substantive argument has been the clause spelling out the punitive sanctions under which bail-out funds can be withheld from delinquent member states; at the time of writing, Hungary is still threatening to use its veto. In July, when Lockdown 2.0 was not even a twinkle in Covid’s eye, Christine Lagarde, President of the ECB, voiced doubts that €750bn would be enough, it was likely to be too little and too late. It was estimated then that the eurozone would take 38 years to settle the outstanding debts (accruing from 4 months of lockdown!). Perhaps EU capitals think in the context of 38 years’ repayments a few months’ delay now while they argue the niceties is a mere trifle.
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