Investors and policymakers alike look at how the economies around the world react to the coronavirus shock. Every retail trader or portfolio manager thinks of how the new normality will look like.
What can investors expect after Covid-19?
Morgan Stanley’s Perspective
Research provided recently by Morgan Stanley reveals four possible scenarios regarding how life after the coronavirus may look like. It focuses on how consumers and businesses are likely to react in a low or high risk-aversion scenario.
In the first scenario, the assumption is that a vaccine comes well before spring 2021, and life will return to normal much faster than anticipated. Both businesses and consumers will regain their pre-crisis habits due to the low risk-aversion environment. In other words, post-coronavirus life looks pretty much similar to pre-coronavirus conditions.
The second scenario considers a vaccine in spring 2021 and little or no second wave outbreak in the fall of 2020. In this case, businesses remain open, and consumer spending recovers fairly quickly due to declining risk aversion.
The third scenario considers spring 2021 as the time when a vaccine is found and a second wave of infections in late 2020. This case allows for businesses to reopen, but consumer spending recovers only gradually and in time.
Finally, the worst-case scenario takes into account the possibility that no vaccine appears until two-and-a-half-years from now. In this case, consumer confidence and spending enter a full crisis mode, the labor market suffers permanent dislocations, and so does the economic growth potential.
What is interesting in this research is that one way or the other, all four simulations/scenarios consider a vaccine to come sooner or later. Even so, depending on the timing, the economic damage on the economy ranges from mild to severe.
It tells much about the desperate situation governments and corporations are to find a cure as soon as possible. Sure, businesses will adapt if not – the ones that cannot, will disappear, and others will emerge ready to take advantage of the new normal. But for most families, the impact is harder, the longer it takes to find a cure.
Armed with 21st century state-of-the-art technology, it is difficult to imagine humankind will not prevail. It is only that the time is ticking for governments to keep businesses on life support, avoid bankruptcies, and provide support for consumers to keep their confidence.