The writer is chairman of Fulcrum Asset Management
As winter approaches in the northern hemisphere, new Covid-19 infections — which are feared to rise in cold weather — continue their inexorable worldwide march. Nevertheless, consensus economic forecasts for gross domestic product growth are being revised generally upwards. This optimism could soon be challenged.
The surprising ability of the American economy to withstand a very large rise in cases in midsummer, and the control of the resurgence without the severe lockdowns of April, have increased confidence that any winter outbreaks of the virus will not damage the global economy. So, too, have relatively low hospitalisation and death rates.
But with a very low chance of an effective vaccine or testing regime being widely available much before next spring, the reopening of schools and businesses may lead to surges in infections that are controllable only through widespread lockdowns. The economic damage from such events will not be negligible and is not yet built into consensus forecasts, so downgrades are likely.
In the longer term, the main risk to advanced economies is economic scarring. According to the OECD Interim Economic Assessment published last week, the effects of greater uncertainty will include higher…