Challenge

Three years since the first known incidence of Covid-19, and following more than 630 million confirmed cases globally and 6.6 million deaths, the world has largely accepted the disease as endemic, much like the seasonal flu. Restrictions designed to contain the coronavirus have been mostly lifted, and economic and social activity is returning fitfully to 2019 levels.

The major exception to this global trend is China. Two years ago, China was lauded by the World Health Organization for its success in beating back the pandemic. The nation of more than 1.4 billion people reported just 6,000 Covid deaths versus more than 1 million deaths in the US and more than 2 million deaths in Europe.

However, continued lockdowns are straining China’s supply chains and larger economy, and the populace has grown fatigued of containment measures.

Economists surveyed by Bloomberg in late 2022 expect China’s GDP to expand 3.3% in 2023, one of the weakest levels in decades.

So, what would happen if the world experienced another pandemic?

A recent PGIM survey found that the emergence of a new pandemic that causes another global shutdown—a low-probability event with outsized potential to derail markets—is a top tail risk for institutional investors in China.

Impact

The consequences of a new pandemic and ensuing global shutdown would be similar to what happened following the emergence of Covid-19 in 2020, according to Alicia García-Herrero, Senior Fellow at the East Asian Institute of the National University of Singapore.

She believes the pandemic learning curve would be less steep, so people would know how to protect themselves better, but resistance to strict lockdowns, especially in Western countries, could lead to greater casualties than Covid-19.

Governments would provide economic stimulus, but García-Herrero says that the stimulus would be tempered by the results of the 2020 economic response, which some analysts believe discouraged people getting back to work and helped create the current high-debt and high-interest rate environment of today.

“There would be stimulus, but it would be less aggressive,” she says.  “I imagine the US and Europe would be more stingy.”

The reduced learning curve would also assist the global vaccine development response to a new pandemic. Unless this pathogen resisted all vaccine attempts, García-Herrero expects that a vaccine would be developed more quickly than in 2020, especially in light of how quickly a vaccine targeting the Omicron variant was manufactured.

“If vaccines arrive, the overall impact could be very sharp but very short in the developed world,” she says. “In the emerging world, I don't think they can do any fiscal or monetary stimulation, so the economic impact will be very big.”

For China, the key economic challenges of a second pandemic would fall on the mobility and real estate sectors, according to García-Herrero. She estimates that during the initial onset of Covid-19, China’s mobility was reduced by 60%, and remains affected today—and it’s safe to assume that the transportation sector would suffer a similar hit in another pandemic.

China’s real estate sector, which is currently enduring its own non-pandemic-related challenges, would also likely feel extra strain because of the lack of mobility, García-Herrero suspects—during lockdowns, citizens may be less interested in purchasing property further afield, fueling sharper drops in demand.

Takeaway

One positive result from the terrible global toll of Covid-19 is that people and governments are now vigilant regarding the emergence of new pandemics and painfully aware of the enormity of their potential impact.

“We have many more virologists than engineers in governments everywhere in the world,” García-Herrero says. “Every country is now attaching importance to understanding contagious diseases.”

This renewed attention is critical because climate change will likely create many more events similar in nature to the Covid-19 pandemic.

In the fall of 2022, widespread flooding and stagnant water in Pakistan caused a rise in deadly diseases, such as dengue and malaria. According to Bloomberg, as the Earth warms and climate disasters occur with greater frequency, experts are concerned that insect-borne diseases will become more common, including in regions of the world where they’re not currently a threat.

“The ecosystem is changing and therefore we’re going to see more of these events,” says García-Herrero. “Maybe not as serious, but maybe more serious. We don’t know.”