The Day After: Social and Economic Issues in a ‘Post-Pandemic’ World in 2022 – A column by Ingo Plöger

We are going into the new year of 2022 coming out of pandemic and global agreements about the future of our planet. We went back to planning and wanting to anticipate the future for our activities.

Developed countries have already vaccinated most of their citizens and are in the third application, while developing countries are still partially in their first dose. Vaccine rejection has become a political fact in developed countries, while access is the decisive factor in developing countries.

The eradication of COVID will only take place when as many as possible are vaccinated, and strain variations become minimal, due to general protection. Some central countries in Europe are showing an escalation of contamination, and restriction measures are being implemented, again, by regions. Meanwhile, developing countries have rising vaccination rates. Some are surprising, such as the case of the megacity of São Paulo, which reached 92% of the two doses of vaccination, and still does not allow the use of face masks to be relaxed, even in open spaces.

Therefore, still in the year 2022, we will have important adjustments in mobility due to the issue of regional and global public health. It will affect economies on the side of open trade, tourism, leisure, fairs, exhibitions and culture. Habits acquired in the last 18 months, such as e-delivery, the use of platform delivery, not to mention the advance in meetings and teleworking, as well as the difficult choice for distance learning at schools and universities, will probably be maintained. The difficulty is in understanding which trends will be gone easily and which will be permanent. Moreover, for developing countries, the real ghost of hunger and growing misery is still very much present. Although the restrictions have been relaxed, the consequences on trade, tourism, and leisure have led to economic gaps in companies and jobs, and without the emergency aid from the states, hunger would have been even greater.

This reality showed us the real face of humanity, with little solidarity in terms of sharing in a more equitable way the management of the pandemic and its social consequences. On the other hand, there is more solidarity toward the planet’s care as seen in the results achieved in Glasgow regarding the environmental issue. Even these compromises reached showed solidarity, even an unexpected one, which in ideal terms fell short of what is necessary, but it showed what is possible.

Looking at the two sides of this same coin, I notice that global social issues do not receive the same political attention as the environmental issue, perhaps because it is much more on the agenda of developing countries than developed ones. Certainly, this shortsightedness will have political repercussions in democracies over time.

In addition, how is the economy from this perspective?

It is very interesting to note that in global macroeconomic indicators, three trends mark the “day after”. The first is that economic recovery, GDP growth, is higher than expected in most countries. The second is the indebtedness of states due to emergency assistance and the third is the increase in inflation.

The pandemic disrupted global production chains, and caused the collapse of supplies in economic recovery due to regional, structural and demand imbalances. The pandemic forced the demand for “last mileage logistics” of such a magnitude that the supply was either unable and able to meet. Unmet demand reacts in terms of price, which inflates the economy because of the scarcity of supply. Central Banks and many financial agents tend to react with demand-side inflation instruments, and the very high risk is that this will not be effective, as it does not reach the source of the problem, which is precisely supply. The last time the global economy went through something similar was during the oil shock of the 70s. It was not demand-side inflation, but supply-side inflation due to the creation of OPEC because of the increase in the price of oil.

Even though it slows down consumption, the increase in interest only feeds back into the prices of supply and capital, and the side effects are huge. As long as supply is not stimulated by investments, competitive exchange rates, reduction of import rates and facilitation of foreign trade, investing in logistics, energy, and in poorly strategic areas, the effect will be perverse, and will not lead to an increase in competitiveness, but it will rather promote the presence of the state in lieu of private initiative, with subsidies and unwanted interventions.

The year 2021 showed that we grew more than we imagined, and the economic results were better than in 2020. Even though we have higher interest rates, the growth for the coming year will keep the structural demand active; that is, sales not carried out because of the collapse of supplies will be postponed until 2022. Emergency aid will remain because of the social, and, therefore, we will have higher indebtedness on the one hand, but also growth, albeit at lower rates than in 2021. It is at this point that we see the greatest divergences between IMF, World Bank, OECD, and financial institutions’ indicators. 1)

Here, the aviators’ map differs from the overflown territory…

Seen from above, it seems that we will have a big contradiction between what is expected of the economy and what is foreseen. In spite of having greater inequalities, “the day after” conversely created a demand that is not yet fully understood and a much greater capacity to react than expected. The reallocation (downwards) of supply prices during the year 2022 will take place, including in energy, food and raw material prices. The increases have already been priced in, and demand for the new normal will re-establish itself, giving no argument for a global and Latin American recession, as shown by IMF and World Bank forecasts, as opposed to the financial system, which forecasts recession. 2)

We will be split between those who believe in their market, feel the pulse of their customers, and will invest and the excess of zeal, caution and exaggerated risk aversion, on the other, remaining on the rent-seeking’s side.

I hope my business intuition does not let me down.

 

Ingo Plöger is a Brazilian Entrepreneur, President of CEAL Brazilian Chapter

 

1)         http://www.fgv.br/mailing/2021/conjuntura-economica/11-novembro/revista/7007231/8/#zoom=z

2)         https://forbes.com.br/negocios/2021/09/fmi-diz-que-economia-brasileira-esta-se-saindo-melhor-do-que-o-esperado-e-mantem-projecao-para-pib/

 

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