COVID-19: POLICY-OPTIONS EFFECTS FOR AND RESULTING SCENARIOS FOR 2022.

EXECUTIVE SUMMARY:

Governments around the world are on the horns of the dilemma as to whether to do “whatever it takes” to curb fatalities, or to risk higher fatalities to contain damage to the economy and to state budgets. As we predicted, most are emerging cautiously from their first lockdown as no economy could sustain it until a vaccine is found and administered world-wide. Over the coming 8-20 months (May 2020 – end 2021), governments are faced with the options of (I) a periodic suspension of lockdown measures and their re-imposition until then, (II) a partial suspension of lockdown measures, and (III) few restrictive measures, hoping for herd immunity. Most governments are now going for (II) in the form of a dangerous compromise that might get out of hand, aware that they might have to revert to lockdown, but this will be ad hoc and, at this stage, unplanned and at an unpredictable time. The prospects of the fiscal and economic recovery of the UK and other countries after the end of the crisis depend very much on retrospective cost of this first lockdown period and potential further such periods, and on the economic and fiscal effects of the restrictive measures that continue to be in place. Everything else – including Britain’s ability to continue to take a leading role in the world politically, economically, in defence and security – will flow from this. We sketch three possible resulting scenarios which would set the UK on different courses in the recovery period after the immediate pandemic period. The UK’s economic and our military power will be diminished by the debt that is being accrued. While until now, nearly 50% of the UK’s trade is with Europe, the fastest growing trade opportunities are with China and the US, one predictable but not necessarily benign, the other less predictable. This inevitably places trade at the heart of the UK’s national security thinking. The UK’s share of global trade dropped from nearly 4.5% before the global financial crisis to 2.5% in 2018 and is now likely to drop further. Such fragility in the UK’s trading position must inform the UK’s strategic choices as we emerge from the current crisis.