As the UK opens up, other major economies will follow the path to post-pandemic normality

The Omicron wave is likely to peak soon, and as more people are vaccinated, life might finally be returning to normal, albeit with adjustments
Most importantly, social restrictions including those on travel will gradually be lifted, with massive positive knock-on effects on economies

Chris Iggo

Published: 1:30am, 27 Jan 2022

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The UK government has recently announced that it is lifting most of the remaining Covid-19 restrictions on social mobility, including the guidance to work from home. Evidence from around the world suggests that while the Omicron variant is highly contagious, its impact on the health of individuals and on health care provision is much less than was the case with earlier variants.

With the continued roll-out of vaccinations and the Omicron wave likely to peak before the end of the first quarter, there does seem to be light at the end of the pandemic tunnel. Life might be returning to normal, or at the very least we will learn to live with a disease that is endemic and easier to manage than has been the case for the past two years.

Normalisation in everyday life will mean the gradual removal of restrictions on social activity and travel. This will not happen everywhere at the same time. Countries have imposed differing degrees of restrictions throughout the pandemic but, over time, things will broadly open up. Of course, some things have changed permanently.

In many industries, working from home – at least for some of the working week – is going to be normal. Maintaining and proving vaccination status is also something that is likely to remain a feature of post-pandemic life – just in case.

Bethany Stief works from home while twin six-year-old girls Nora and Willa attend online school amid surging Covid-19 cases in Hamilton, Ontario, Canada. Photo: Reuters

Yet, we should look forward to travel and holidays, attending outdoor events, and enjoying our cities and all they have to offer. The economic benefits of returning to levels of social activity that existed before March 2020 should be obvious.

The broader economic landscape will gradually normalise as well. Indeed, that process is well advanced considering how big a shock the world experienced in 2020. Looking across the major economies, unemployment rates are within a few tenths of a percentage point of where they where at the end of 2019.

Many economies have reached pre-pandemic levels of gross domestic product and the next year or so should see them catch up even more to where they would have been if growth had not been so aggressively interrupted.

For many, the normalisation will not only mean greater security in terms of employment, but also getting paid more as well. Wage growth has accelerated in line with broader inflation trends over the past year. A silver lining to the anxiety of living through the pandemic will be that many people have a better work-life balance.

Of course, not everyone will be better off and many hundreds of thousands around the world have suffered directly because of the virus itself or the damage it has wrought on communities and businesses.

Governments will need to continue to recognise that and provide support. One of the results of the pandemic will be higher government spending levels and, in some cases, higher taxes to help fund that.

People carry takeaway dinner boxes through Hong Kong’s Central district on January 9, after the government banned evening dining in restaurants and food outlets to curb an Omicron outbreak. Hong Kong’s finance chief has said his coming budget will offer support for those affected by the pandemic while also boosting the economy. Photo: AFP/Getty Images/TNS

For investors, the return to normality is good news. For the past two years, growth has been driven to a large extent by economic policy – low interest rates and government spending.

Going forward, the private sector will need to pick up the pace and there is optimism that investment in areas like energy transition, supply chain infrastructure and digitalisation will be robust in the years to come.

What’s behind the global supply chain crisis

Despite pre-pandemic concerns about globalisation going into reverse, the past two years have clearly demonstrated how important world trade is and efforts will certainly be made to protect trading relationships.

This is important for Asia, particularly regarding trade with the United States. There are still delays in unloading container ships at Los Angeles port. Investments in shipping capacity, automation at ports and distribution depots, rail freight and haulage will be needed to smooth the distribution of goods from manufacturers to consumers.

Trucks arrive to pick up containers at the Port of Los Angeles, California. Investments in shipping capacity, automation at ports and distribution depots, rail freight and haulage are going to be necessary to smooth the distribution of goods. Photo: Reuters

Just before the start of the pandemic, America’s key monetary policy interest rate stood at 1.75 per cent. Financial markets are expecting US rates to rise this year and are currently “pricing in” that key rate being close to 1.25 per cent in a year’s time.

So, the expectation is that it will take the Federal Reserve more than a year to reverse the cuts in rates that happened in the space of two weeks in March 2020. To me, that does not seem an overly aggressive pathway back to more “normal” interest rate levels. The world economy can cope with that modest amount of monetary tightening.

The benefits of holding face-to-face business meetings, of attending conferences and embarking on marketing trips, and engaging with colleagues in offices around the world again should more than offset the expected increase in global interest rates. We face a better and healthier future.

Chris Iggo is the chief investment officer for core investments with AXA Investment Managers