Economic and Financial Market Update: Returning to 'Normal'


  • High vaccination rates has been the way countries have begun returning to ‘normal’
  • Historically, the disease that creates a pandemic rarely disappears;
  • The ‘end’ has occurred when severe illness and deaths have declined to a level that society considers ‘manageable’; 
  • What is considered ‘manageable’ will differ both within and across societies.

The initial thinking was that the impact of the pandemic would be like a natural disaster:  a short period of potentially extreme economic dislocation followed by a quick return to normality. This view reflected the experience of pandemics/epidemics of the past 100 years. And in Australia that initially was the case. 

But of course COVID did not go away. Globally, the number of cases in the first ‘wave’ did not peak until the end of 2020. It was this combination of a more contagious disease and less restrictions that led to the second ‘wave’. A third global wave then appeared as restrictions were eased following rising vaccination rates in most developed countries. The good news is that that third wave is subsidising. 

Maybe with increasing vaccination rates COVID might disappear. Maybe, but unlikely. A good portion of COVID cases are asymptomatic. An ABS survey indicated that only about half of people that had COVID-like symptoms would get tested. In some parts of the world deadly diseases are viewed as a part of life. 

The historical evidence is that pandemics don’t end suddenly. The end comes once society accepts that the disease has become a manageable part of life. That acceptance will depend upon hospitalisation and death rates caused by the disease falling to a ‘manageable’ level. But what that ‘manageable’ level is will vary across society. The history of flu pandemics is that they have typically lasted for 2-4 years. 

The international evidence is mixed as to how quickly societies return to ‘normal’. Although the UK has substantially eased restrictions they are still above where they were at the start of 2020. Restrictions have been eased even more substantially in Denmark reflecting their current lower level of cases and high vaccination rate. China has had even lower case numbers and amongst the highest vaccination rate in the world but restrictions levels remains tight. Singapore has a very high vaccination rate but recently reimposed restrictions when case rates increased.

Even leaving aside Government decisions, reactions to rising COVID cases have differed across countries. During the most recent wave service-sector business confidence declined across most countries. That decline has been more moderate in Europe and the US than the large Asian economies. 

Confidence can also be different within the same society. Confidence in the US during the most recent wave has been stronger for under 35’s than older age groups (something similar is observed in the UK and Germany). This likely reflects the greater health concerns that older people have about the virus. To date Australia has had the opposite experience (ie, consumer confidence amongst the under 35’s has been weaker). 

In Australia, state governments have indicated that some restrictions will remain in place for some time to come even after high vaccination rates are achieved. These restrictions may increase if case numbers rise substantially although a return to stringent widespread lockdowns is unlikely. That are differences between governments but that should not surprise as that is consistent with the international and historical evidence. The global evidence suggests that older people are more likely to become cautious in the event of a rise in cases.


To read my full update, click here.


We live in interesting times.


Peter Munckton - Chief Economist