The Covid-19 pandemic could give way to “intense political and economic upheaval over the coming decade”, according to a study by Pictet Asset Management, which has highlighted several different scenarios that could emerge.
Past pandemics have proved to be “profoundly disruptive” with long-lasting economic, societal and geopolitical impacts, the asset manager noted.
“Stung by the experiences of the pandemic, politicians come to prioritise national resilience and move to protect local and national industries at any cost,” said Pictet’s Steve Freedman, head of research and sustainability, thematic equities.
“In many cases, this leads to international disagreements and conflicts over trade, jobs and immigration policies.”
He added: “Divisions also form over aspects of the sustainability agenda and, more fundamentally, over societal values and human rights. Protectionist policies become the norm in many countries.”
As such, the asset manager has come up with four scenarios – with the Copenhagen Institute for Future Studies – that it expects to emerge in the coming decade based on the choices made by people.
Below, Pictet and the institute’s scenario matrix have been constructed using two factors that will have the greatest impact on economic, geopolitical and societal conditions in a post-Covid world, each with their own clearly defined extremes.
Source: Pictet Asset Management, Copenhagen Institute for Future Studies
“For societal values, the end states range from a world in which the welfare of society as a whole is the primary concern to one where individualism and self-preservation are dominant,” the asset manager noted.
“For inter-country relations, meanwhile, full multilateralism sits at one end of the scale and unilateralism at the other.”
Below, the asset manager explains the four scenarios in more detail.
Scenario A – ‘Act local, think global’
The first scenario, ‘act local, think global’, is based on society emerging from the crisis “with a new moral purpose” and accepting that inequality and environmental damage can only be reversed via collective action.
However, trust in globalism and intergovernmental institutions is likely to decline rapidly, leading people to focus on what they can do to bring about change, particularly on consumption choices.
Nevertheless, in this scenario, national governments turn inwards, introducing measures to protect national industries and intellectual property.
“Global productivity and trade suffer as protectionism inhibits international co-operation,” the asset manager noted. “On the other hand, localism thrives, boosting industries that are able to adapt products and services to meet consumers’ changing needs.”
Scenario B – ‘All together now’
In ‘all together now’, the world recovers from the pandemic with “a renewed sense of solidarity”, Pictet noted.
“Governments and citizens the world over come to a shared vision for a more inclusive and sustainable economy and work in tandem to achieve that goal,” it said.
In such a scenario, there is a transition from a unipolar world – led by the US – to a more multi-polar one where nations and international organisations collaborate more closely to tackle climate change and other deep-rooted societal problems.
This will likely be accompanied by increased investment in environmental technology and renewables and see new policies introduced to protect vulnerable communities and give workers enhanced rights.
However, such a scenario would come at a cost, with economic growth falling below long-term trends and higher corporate taxes stifling innovation and competition.
Scenario C – ‘Not my problem’
The third scenario, ‘not my problem’, sees policymakers alerted to deep-rooted problems that have long been neglected.
“There is broad agreement among the world’s largest economies that inequality, poor social mobility and environmental damage are global threats that require global solutions,” the asset manager noted.
“Citizens take a different view, however. The experiences of the pandemic have left large swathes of society feeling overwhelmed by the sheer complexity of life in the 21st century.”
In such a scenario, people begin turning inwards and prioritising their own livelihoods and financial security and disengaging from political discourse and community life.
Pictet continued: “All of which means government efforts to transition to a more inclusive economy struggle to deliver in the face of intransigence from the wider population.”
Scenario D – ‘Going it alone’
In the final scenario, ‘going it alone’, the world becomes a less optimistic place, according to Pictet.
People emerge from the pandemic with little or no confidence in governments’ ability to address problems highlighted by the coronavirus.
“They are more pessimistic about their own future, disengaging from the political process,” the asset manager said. “Ethical and environmental considerations and the idea of ‘shared sacrifice’ no longer hold sway.”
Under this scenario, nations begin turning inwards to safeguard their own natural resources, industries and workers. And international cooperation is limited, harming progress on global issues.
“The prevalence of protectionist measures worldwide reduces the growth potential of the global economy significantly over the longer term,” it further noted.
Nevertheless, the asset manager said it is important to note that none of the four scenarios that have been constructed are forecasts of what might happen after the pandemic.
Nor is one scenario more likely than the other.
“Rather, the scenarios should serve as a starting point for long-term planning and strategic asset allocation,” it said.