Different countries will adopt different approaches to ending shutdowns but a common theme is likely to be that restrictions are phased out gradually by sector and, perhaps, region. The extent to which this is accompanied by new mass testing programs will have a strong bearing on the speed at which countries open up – as well as the likely response in the event of a second wave of the virus. The gradual approach to opening up is one reason why we expect the recovery to be drawn out for most countries.
The timing of reopening will be governed by the extent to which the virus is brought under control as well as the burden being placed upon healthcare systems. This will vary from country to country but could start as soon as next month. A key point, however, is that while the shutdowns were imposed swiftly across large swathes of the economy, re-openings will be gradual.
One approach could be to stagger the reopening across regions. This was the model followed by China. It has the benefit of allowing governments to ease restrictions depending on local infection rates and the strains within local healthcare systems. It is perhaps most likely to be deployed in countries that are both large and where a significant amount of authority is devolved to state or regional governments (e.g. the U.S. and India).
Another approach would be to phase the reopening across different sectors of the economy. This would allow sectors that are economically more important, or where human contact is more limited to open first. In this model, manufacturing, construction, logistics and some outdoor industries would be the first to reopen. Schools would follow. Restaurant, hospitality, and leisure would be among the last. Restrictions on foreign travel would remain in place for the foreseeable future.
As it happens, despite all the talk about governments putting together exit strategies, most are still in the process of extending lockdowns. But the general approach to reopening has also started to enter the discussion. In practice, governments are likely to follow their own path – lifting the lockdown gradually across regions, sectors and even age groups. Three general points are worth making.
First, at the risk of stating the obvious, there’s likely to be a significant variation in the performance of different sectors as economies open up. Crucially, this will depend both on when restrictions affecting sectors are lifted but also on consumer behavior. After all, lingering concerns about the virus may mean that individuals are reluctant to gather in public places like theaters and restaurants long after the official lockdown is lifted. There is some evidence that this is happening in China. One consequence is that Sectors like manufacturing and construction are likely to rebound sooner than leisure and tourism.
Second, at a macro level, economies that are more dependent on sectors that will lag behind are themselves likely to be much slower to recover. Emerging economies including Mexico, Thailand, and Turkey are among the most reliant on tourism and face a prolonged period of weakness. In the developed world, the same is true of Greece, Portugal, and Italy.
Finally, most scientists agree that the key to lifting lockdowns lies in mass testing and tracing programs. These would allow governments to identify, isolate and monitor any new outbreaks of the virus as economies are reopened. Widespread shutdowns are only needed when governments lose control of the virus. But the experience of Korea – which implemented an early strategy of mass testing, tracing and local containment – has demonstrated that national lockdowns can be avoided.
The extent to which mass testing programs can be developed and then rolled out across countries will influence the speed at which governments move through the different phases of reopening. Perhaps more importantly, it will also determine the scale of the necessary response should a second wave of the virus develop. If the U.S. can develop the right plan and the implementation and execution are effective the markets will perform well and the economy will begin to grow again.
At BWFA, we are looking at the sectors we believe will do well over the next 12 months like Technology, Online Retail & Social Media which we believe can continue to grow. Again, we are trying to minimize risk and maximize quality inside your portfolio. If you have any questions or would like to set up a virtual meeting please don’t hesitate to call us. We hope you and your family remain safe throughout this crisis.
Robert G. Carpenter