The virus epicentre shifts to Latin America and with it the risk of social unrest rises. Lockdowns reduced herd immunity but there are still more known unknowns than knowns. Will the consumer liquidity crisis morph into a corporate solvency crisis?

  • After Europe and the US, the epicentre of the pandemic is now moving to Latin America – Brazil, Chile, Mexico and Peru are the countries most affected. The outbreak is also progressing fast in countries as different as Russia and India. It is in emerging markets that the effects of Covid-19 will be the most painful, both from a human toll and economic perspectives. In some countries, mass unemployment and contingent income loss could lead to hunger and desperation, running a high risk of social unrest and displacement.
  • On May 19, the WHO recorded the largest one-day increase in cases globally – a critical reminder that the pandemic is far from over. In the US, the CDC warned that the coronavirus is likely to flare up again, raising the possibility of a second round of lockdowns this autumn and winter. Countries that have robust Covid-19-tracking capabilities will be those that do best in terms of containing their respective outbreaks.
  • A recent study concludes that France’s lockdown led to a reduction in the reproduction rate of the virus from 2.9 to 0.67 (when a person infects ‘less’ than one other the disease eventually goes into retreat); and that 4.4% of the French population has been infected by Covid-19. This rate of infection is much higher than the official count but still much too low to achieve “herd immunity. Similar studies in other countries lead to similar conclusions, suggesting that lockdowns work quite fast in reducing infection and that as a result, a large majority of the world population is still susceptible to catching the Covid-19 virus.
  • An update on what we know and what we know we don’t know about Covid-19.The key ‘known unknowns’:
    • The case fatality rate (but Covid-19 is more contagious than the flu and at least 4X more deadly);
    • How long immunity lasts and how long infected people remain contagious;
    • How to best treat it and when a vaccine will be available.

    Main knowns:

    • In a closed space with poor ventilation, the longer and the closer we are to an infected person, the higher the risk of infection (precisely why the next MB Summit of Minds will be held almost entirely outside),
    • the best way to contain transmission is through (a) social distancing and masks, (b) mass testing, (c) rigorous contact tracing and (d) isolating.
  • Saving rates are approaching record highs in the US, the UK and continental Europe, meaning that consumers are not coming to the rescue of the economy. The most recent data is likely to prove the last nail in the coffin of a V-shaped recovery (in which a few die-hard but influential economists and strategists still believe). Over the next few months, the issue of how long households will defer spending will define the shape of the eventual recovery: U or rather L.
  • Could Hertz’ bankruptcy be the canary in the solvency crisis mine? There is a legitimate fear that the current consumer liquidity crisis could start morphing into a corporate solvency crisis. The bailouts amount to a form of “life-support” that can only go so far and cannot be long-lasting. The most immediate and dangerous fire has been put out at the cost of USD17 trillion, but as the economies progressively emerge from hibernation, what will happen next? Much will depend on to what extent recent dismissals and furloughs translate into permanent job losses. In the coming months, it is the industries that depend on social forms of consumption (like travel & tourism or retail) that will be hit the hardest. In rich countries, they account on average for well above 10% of GDP and 25% of employment.