By Dan Steinbock             

As the COVID-19 epicenter has moved from the Americas to India and poorer economies and G20 countries remain severely affected, the world economy faces secondary waves, more virulent strains and must cope with lost years.

Recently, President Trump tested positive for COVID-19, which initiated contact tracing in the infected White House. The debacle followed nine months of failed pandemic leadership, neglect of basic public-health procedures, premature exits from the lockdowns and earlier-than-anticipated secondary waves.

Loyal to his style, Trump returned to the White House too early, perhaps determined to continue his new life as the world’s most powerful super-spreader.

The failed leadership has been accompanied by huge collateral damage, as evidenced by the spread of COVID-19 in the U.S. and the scarred economy.

In early October, United States had almost 8 million accumulated confirmed cases. It was followed by India and Brazil with 7 million and 5 million cases, respectively. Without deceleration, the worldwide cases could soar to 55-60 million and deaths to 1.3 to 1.7 million by the year-end.

And these are the confirmed figures. The projected estimates are far higher.

Every 10^th worldwide infected

According to new estimates by the World Health Organization (WHO), some 10 percent of the world’s population may already have had the new coronavirus. If that’s true, consider the implications: Since world population is 7.8 billion, that estimate translates to 780 million, whereas the current estimate of the confirmed cases is less than 40 million.

China contained its outbreak in the 1^st quarter. As the US and Western Europe failed to do so, the epicenter spread to both. In the summer, the epicenter continued to linger in the US and the Americas. And today, COVID-19 cases and deaths are -resurging across Europe, Southeast Asia and the Mediterranean. In Africa and Western Pacific, the situation is more subdued for now (although low testing inflates optimistic scenarios).

If countries fail to slow down the acceleration of new COVID-19 cases, the past three quarters could still be a prelude to much worse, especially if the epicenter will move from the United States and the Americas to developing economies, even as secondary waves are sweeping across old epicenters.

In the first week of October, India had the highest numbers of new cases globally (almost 560,000 in the first week of October), followed by the US (300,000) and Brazil (190,000). Meanwhile, surges of secondary waves have occurred in Argentina and Colombia, France, UK, Russia and Spain (50,000 to 100,000 in each).

In the process, G20 economies have been severely affected. As the world is about to face new and potentially more virulent strains, world economy is coping with lost years, as evidenced by the much-earlier-than-anticipated resurgences and secondary waves (see BOX).

COVID-19 damage in US and Americas          

By early October, the confirmed accumulated cases in the US amounted to almost 8 million; that’s half of all cases in the Americas. To understand the full magnitude of the pandemic devastation in America, think of US states as independent economies.

Today, as adjusted to the size of population, US states continue to account for a whopping 22 of the 25 most-virus affected major economies worldwide (Figure 1).

The top-25 ranking has room for only three sovereign countries (Chile, Peru and Brazil); all in Latin America, but none among the top-15. Even Brazil ranks only last in the list behind Utah, Rhode Island and Oklahoma. The poorest top-ranked US states, such as Louisiana and Mississippi, and those with the highest median age, including Florida, barely make the headlines. And India isn’t even in the list.

Like the US, Western Europe lost weeks in belated COVID-19 mobilization. But unlike the US, it has fought the virus more effectively thereafter. Unlike the US, most European economies have stronger health systems, universal healthcare and more comprehensive social support systems, which ensure a better cushion against the adverse public-health and economic damage, at least initially.

In contrast, the Americas, with its poorer economies and weaker health systems, has taken a severe hit. In Brazil, the Bolsonaro government initially ignored science-based evidence, shunned early mobilization and public-health imperatives. Today, Brazil still has the third-highest number of confirmed COVID-19 cases in the world.  

In the pandemic second-tier of Latin America, the key countries (Colombia, Peru, Argentina and Mexico) each had some 770,000 to 900,000 confirmed cases in early October. At population-adjusted level, Chile’s pandemic has been one of the worst worldwide. In turn, US spillovers have contributed to the pandemic crisis in Mexico and certain other Latin American countries.

There is nothing inevitable about the pandemic crisis in the Americas, however. The US has five times more (population adjusted) confirmed cases than Canada, which suggests that appropriate precautions can work, despite evelated risks in the regional neighborhood.

Why policy mistakes in G20 compound human costs and economic damage worldwide

In fall 2020 and spring 2021, some countries will face secondary COVID-19 waves from a position of strength. These are countries that have managed to bend the epidemic curve. Their cumulative cases are decelerating and they have lower positivity rates (percentage of people who test positive for the virus of those overall who have been tested).

Other countries must struggle with the new waves from a position of weakness. These are countries that have failed to bend the curve. Their cumulative cases continue to accelerate and they tend to have higher positivity rates.

Collectively, the G20 economies account for 90% of the gross world product, 80% of world trade, and two-thirds of the world population. What happens to G20 countries will affect the entire world – unfortunately that includes the pandemic.

Until recently, severe epidemic outbreaks were typically confined into poorer economies because more prosperous countries relied on science-based public-health policies. The COVID-19 case has been very different.

As some of the leading G20 countries mobilized against the outbreak belatedly and ineffectively, their policy mistakes have contributed to massive human costs and economic damage. To gain a more realistic picture of the consequent threats, let’s use population-adjusted data, linear scale and focus on those economies in which cases are still accelerating and positivity rate remains high (Figure 2).

Currently, the primary risk group involves the United States and the Americas, particularly Brazil and Argentina. While the positivity rates have decreased from peak levels in the US, total cases and deaths continue to increase, as a result of repeated policy mistakes, premature exits from the lockdowns and violations of appropriate public-health guidance.

Regionally, the Americas is followed by South Africa, Russia and Western Europe, including France, UK, Italy, Germany, as well as Turkey. In Australia, China and Japan, the cases remain significantly lower.

In India and certain countries in Southeast Asia – the Philippines and Indonesia –positivity rates remain high. Yet, population-adjusted numbers are lower than in most advanced economies. Despite huge aggregate levels, India, for instance, remains behind Mexico and at par with Canada.

In Japan, the true spread of the virus has been under-reported because of low testing, which in population-adjusted terms remains below that of Mongolia and Guatemala, or about 4% of that in the UK.

In contrast, China managed to contain the pandemic within a month or two, which has minimized human costs and economic damage in the mainland. South Korea’s early performance was successful. But more recently it has not been able to avoid secondary waves, thanks to far-right Christian cult churches and the kind of conservative pandemic “denialism” that has infected much of the advanced West..

A new mutation, severe regional consequences

In late summer, a “more infectious” COVID-19 strain was found in tested samples in Quezon City (Metro Manila) and Malaysia, which, in turn, has attributed the strain to cases imported from India and the Philippines. This development was anticipated in my report, and it requires aggressive vigilance.

Here’s why: Not so long ago, a mutation was discovered in the protein that permits SARS-CoV-2 to enter cells, possibly making it easier for the virus to spread. The implications are unsettling. The original samples of the novel coronavirus out of Wuhan, China, were a variation that scientists call the “D” clade. Before March 1, over 90% of viral samples taken from patients were from D variation. Since March, however, a new “G” variation has been dominant (Figure 3).

Though not conclusive yet, evidence suggests there has been a global transition from the D to the G variation. Worse, the G strain appears to increase COVID-19 infectivity. If, as the researchers hypothesize, the G variation first intensified in Europe, it deployed the global transportation hubs to migrate across the Atlantic to New York City, which then seeded many of the outbreaks in the rest of the US.

Here’s another unsettling implication associated with the global transition from D to the G variation. It could make the pandemic burden of developing economies more challenging than currently anticipated. That could occur after normalization in the US and Europe, when quarantines, lockdowns and travel restrictions are phased out in the West.

Due to proximity and regional spillovers from the US, the G variation has been dominant in South America since March-April. Perhaps for similar reasons – proximity with Europe – it has also dominated infectivity in Africa.

In Asia and Oceania, the less-infective D has been more dominant. Yet, continued case acceleration and G variation dominance in several major countries and regions, coupled with the proliferation of secondary waves could change the status quo – for the worse.

Worse-than-anticipated economic damage              

As I have argued since April, the original IMF baseline scenario (World Economic Outlook, April 2020) was not adequately realistic because it ignored the fragile economic landscape that preceded the pandemic. Unfortunately, the same goes for the IMF’s next baseline case (WEO, June 2020), which expected a V-shaped recovery to ensue in 2021. Worse, the disastrous 2^nd quarter results, which I projected in March, indicate that structural economic scarring will cast a longer shadow over more countries than currently anticipated.

Measured by GDP per capita (purchasing power parity, PPP), the adverse impact has been drastic and translates to lost years; as defined by years of regression in per capita income, even in the world’s largest economies.

Instead of the expected 1-2% growth, high-income economies now suffer from the worst recession since the Great Depression. The outcome will not be the initially-hoped V-shaped recovery. Most face 5-7 years of lost progress. In some cases, debt-taking downplays impending, new debt challenges (e.g., Japan, US). Indeed, the coronavirus contraction is likely to trigger a series of debt crises in several advanced countries, which will have spillover effects in weaker economies.

The United States is a case in point. As its national debt already exceeds $27 trillion, US federal debt-to-GDP ratio has soared to 138%, according to US Debt Clock; that’s more than the ratio of Italy. But unlike Italy, the US remains a global anchor economy. And unlike the pre-euro Italian lira, US dollar remains a global reserve currency. What will go wrong in America will affect the rest of the world.

In the upper middle-income economies, most have already lost 5-7 years of progress. Prior to COVID-19, Argentina had been struggling with neoliberal legacies, while in Brazil the soft coup against the Lula-Rousseff administrations has penalized living standards since the mid-2010s. In these two major countries, the lost years are twice as many as among their peers. The only exception in this group – in fact, in all these groups – is China, which may avoid lost years, even if per capita income growth will decelerate in the short-term.

Despite strong structural growth potential, many lower middle-income economies are likely to be heavily penalized by the pandemic effects. Yet, there is great variety. Though the best performers have lost 3-4 years (India, Kenya, Philippines, and Vietnam), the worst ones may have lost a decade (Nigeria).

Among the low-income economies, the best economic performers initially expected growth rates of 6-7% in 2020 (Ethiopia, Mozambique, Uganda). After the devastation of the global pandemic, they are more likely to see their growth prospects halve in the ongoing year. Moreover, Afghanistan, Congo DR and Yemen continue to cope with civil wars, foreign invasions and legacies of corruption. At the same time, the pandemic threatens to push millions of children into malnutrition.

Preparing for new secondary waves   

Despite the lost years in all income groups, the key question is how quickly countries can restore their pre-coronavirus rate of growth in per capita incomes. And that depends critically on their ability to effectively contain the pandemic.

Unfortunately, de-globalization will further undermine prospects for global recovery, due to new protectionism and trade wars. These challenges will be compounded by the expanded US wars in trade, technology and finance. While China is the first target, others – Germany and the EU, Japan and South Korea and so on – will follow in due time.

A Democratic Biden administration could alleviate the negative public-health and economic consequences. Conversely, Trump’s second term could accelerate the path to a multiyear global stagnation or global depression, and a dollar crisis.

If the Democratic campaign proves stronger than anticipated, an “October Surprise” could be likely. Such a scenario is defined as a major news event deliberately created or timed to influence the outcome of the US presidential election. In the US postwar history, embattled Republican campaigns have seized such scenarios to win the presidency, even at the cost of the national interest (e.g., Nixon in 1972, Reagan in 1980). Similarly, the Trump White House seems intent to win re-election at any cost, even a military conflict with China.

The global pandemic effects can only be overcome through multilateral international cooperation across all political differences. In the absence of such cooperation, those effects will compound negative scenarios. The COVID-19 -associated human costs and economic damage will not go away anytime soon and could get much worse.

Historical precedents are instructive. Between 1918 and 1920, the Spanish flu infected an estimated 500 million people; every third person in the world at the time. The death toll amounted to 17 to 50 million. Yet, it was the second wave that proved far more deadly than the first.

Old lessons should underscore the importance of multilateral cooperation and proactive vigilance until effective vaccines and therapies are widely available.

If we still haven’t learned the lesson of the second wave, we may be forced to learn it over a new crisis – an extended pandemic and multiyear global depression. 

About the Author

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/