Are Markets Focused On The Wrong Second Wave?

Being bashed by big swells at the Forty Foot seemed more than appropriate this morning. Brief chats in the water touched on further domestic pandemic restrictions and breaking news of a Presidential infection in Washington. The virus apparently doesn’t do white supremacy or mask-free immunity. We are thinking karma, but undoubtedly more chaos.

Already, governments in many Western economies are battling a second wave of C-19 infections and increased pressure on public health systems. Indeed, financial market concern has been reflected in declining equity markets and, more recently, oil prices through September. But… is this resurgence in infection the “second wave” we should fear? Of course, on a public health level fears are justifiable but there are early hopeful indications we will not revisit the awful mortality and ICU hospitalizations experienced earlier in the year. One can only hope our worst fears do not materialize. And, there is economic precedent. Our own Department of Finance is now forecasting a 2020 GDP decline of 2.5% which compares to an initial April forecast of a 10.5% collapse. In hindsight, there were a couple of good reasons for such resilience.

First, our multi-national sector is heavily weighted to health and technology. Both sectors are experiencing a boom in demand as economies and companies moved to protect populations and migrate staff (and customers) online. Second, incomes were replaced or subsidized by government funding. This income protection strategy has been a major driver of spending in the economy and avoided further consumptions shocks. Yes, there has been severe damage in sectors like hospitality and travel but it could have been so much worse. It could still be.

Many businesses have limped through the first 6 months of Covid-19. The latest public health restrictions in Dublin are beginning to prompt realistic fears of a full year of pandemic pressures out to Easter 2021. Every small business survey highlights the very small cash reserves available to the SME sector – a tiny percentage can survive a 12 month cash flow shock. More worrying, the government is scaling back wage support subsidies. One senses we are on the cusp of many managements about to make extremely difficult decisions about keeping businesses and staff afloat.

Rationalisation has already started at the larger company level. Ryanair might be threatening Cork and Shannon this week but in the UK the dole queue drum beat is growing very loud. Royal Dutch Shell and TSB Bank announced over 10,000 job cuts yesterday. British Airways, Rolls Royce, John Lewis, H&M, M&S and easyjet have already announced their own staffing cuts with the UK events industry also warning of 90,000 job losses. Dare we even mention Brexit? Smaller businesses in Ireland will go quietly into insolvency. There won’t be big headlines but mass unemployment is the second wave we should truly fear. The social and economic damage will be huge and certainly not revived by a vaccine or multi-national corporate success.

Leaving Cert screw ups and risky student revelry are currently grabbing the headlines but in the generational scheme of things they are mere side-shows. The true generational threat is the lack of political alarm about the future of Ireland’s SME sector and its more than one million jobs. They are the growth, they are the future. Surely, the youth and their futures deserve a voice and urgent protection from that second wave too?

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