The economic cost of coronavirus is on track to dwarf any other downturn in modern history.
The financial crash, which was seen as the successor to the 1930’s Great Depression, took three years to play out. This crisis has taken three weeks, and is already being widely termed the ‘Greater Depression’.
Currently, every component of aggregate demand – consumption, capital spending, exports – is in unprecedented freefall.
While optimists are anticipating a V-shaped downturn, the realists already recognise that the Covid-19 crisis is “something else entirely”.
“The contraction that is now under way looks to be neither V- nor U- nor L-shaped (a sharp downturn followed by stagnation). Rather, it looks like an I: a vertical line representing financial markets and the real economy plummeting”, Nouriel Roubini said.
Compounding unprecedented damage
Yet even in the face of an unprecedented downturn, Michael Gove last week confirmed that the UK government has “no intention of changing” the December 31 date for ending the Brexit transition period.
On the health front it has already been seen that ideological lines have been drawn between the UK and the EU, with Britain failing to utilise opportunities to get items such as masks, gowns and gloves under an EU initiative.
Apply the same approach to the economy and we can easily surmise that we are looking at a hard exit come 2021 when the transition ends.
Economic impact of Brexit
But that will only serve to heap more misery on an already beleaguered economy.
According to Boris Johnson’s own official government figures Brexit is set to make British people far poorer than they would have otherwise been.
A deal along the lines of that backed by Parliament will reduce annual economic growth by 6.7 per cent compared to staying in the EU, amounting to a major hit to the UK economy.
The overall cost is estimated to be as much as £70 billion which is equivalent to about £1,100 per person per year, all thanks to new barriers to trade that we have willfully inflicted upon ourselves.
“Economic Stone Age”
The combination of the two economic earthquakes – one voluntary, one involuntary – risks leaving the UK facing an “economic Stone Age” while the rest of Europe recovers, SNP MP Michael Russell said this week.
Writing in The National, he warned that the point at which the impact of Brexit will kick in will be when the “economy is reeling from the worst crisis in our lifetimes … in the view of the IMF, comparable to the Great Depression of the 1930s”.
“Yet the UK Government – alone – believes that the economically regressive effect of a self-inflicted Brexit can be blithely added to that mix as well.
“If it does so, then the UK will, in full view of the rest of the world, be fiddling its way back to an economic Stone Age.”
Second, voluntary shock
Pausing the negotiation process could be damaging for the Conservatives, but given the current backdrop it is the only grown-up option to avoid a double dip impact that could last for generations.
As Professor Brian Cox recently said, “Brexit is a self-indulgence from another age.
“There can be no justification for imposing a second, voluntary shock on the country in early 2021.”
Related: The government’s Covid-19 response risks tipping the economy into a death spiral