Pandemic’s economic hit will be here ‘for a long time’ even if a vaccine is approved, economist says

CNBC reports that while markets reacted positively this week to promising news of potential coronavirus vaccines in development, a top economist warned that the economic hit from the pandemic will be here for a long time. 

A large number of small businesses that closed in March — when restrictions around social movements went into effect — are not going to reopen even when the situation improves, according to Raghuram Rajan, a professor of finance at the University of Chicago’s Booth School of Business.

“I think the hit is going to be with us for a long time,” Rajan, who was also the former governor at India’s central bank, told CNBC on Wednesday. 

“As this goes on, more and more businesses find that a long period without revenue, but high cost, implies that they simply don’t have a chance, and they’re closing down,” he added. 

Small and medium-sized businesses around the world have been disproportionately affected by national lockdowns and social distancing protocols. Countries enacted those measures in order to slow the spread of the virus, which has already infected more than 14.8 million people and killed over 615,000. 

Newly released data published Monday in the medical journal The Lancet said a potential coronavirus vaccine developed by Oxford University alongside pharmaceutical giant AstraZeneca produced a promising immune response in a large, early-stage human trial. Earlier this month, pharma giant Pfizer and German drugmaker, BioNTech, also reported early positive data on a joint vaccine candidate. 

Still, the economic damage will be done even if several of the vaccine candidates get approval as early as the fourth quarter, and vaccination is rolled out, according to Rajan. 

“You have to vaccinate a lot of people. So, the earliest people are going to feel safe going into crowded restaurants is probably going to be by the middle of next year. If everything goes according to plan — things are not going to go according to plan,” he said. 

Economies are expected to operate below full capacity for some time despite responses from policymakers, Rajan said. He explained that industrialized countries saw a “huge” policy reaction whereas emerging markets saw only a fraction of that response.