Responding to the transformative events and trends of the COVID-19 crisis, we sought the views of three Capital Group experts in London: political economist Talha Khan, chief European economist Robert Lind and equity investment director Richard Carlyle. They talked about the long-term impact of the coronavirus and what this means for economics, politics and markets in 2021 and beyond.

Q: What are the key political impacts of the COVID-19 crisis globally?

Talha Khan: It will take a couple of years before we get a clear picture of the real impact of COVID-19 on global politics. We are living through a unique experiment of government enforced lockdowns that has no historic corollary. In return, governments have explicitly signed up to providing the necessary economic and health backstops. The sheer number of workers who now rely on the state, the scale of the bailouts, the skyrocketing deficits and debt all point to how fiscal conservatism has given way to a new paradigm. Big governments are no longer the problem but considered imperative to finding the way forward. The pandemic will likely shift the focus back towards economics, away from culture and identity, which had been the focus of recent years. However, the asymmetric shock of COVID-19 means politics will likely remain noisy and volatile. 

Q: What are the geopolitical implications moving forward? Which countries could be the winners and losers of the COVID crisis?

Talha Khan: If we put aside the incredible achievement of the scientific community working across borders to accelerate the discovery of an effective vaccine, in all other matters the pandemic seems to have prompted a country-first, protectionist mindset. This is understandable given the crisis we face and the temptation to hunker down and turn within, but it has costly ramifications.
Over the past year, China has used the perception of a weakened US, and its poor policy response to contain the virus, to flex its geopolitical muscles. It has offered financial and medical help to countries near and far. But China has also exercised its military muscle in its conflict in the high Himalayas with India, and cracked down on dissidents in Hong Kong and Xinjiang.
While the Chinese government seems to have secured a geopolitical win from its ability to contain the virus, its increasing assertiveness has led to a growing backlash in public opinion. In much of Asia, Europe and North America, opinion polls show unfavourable majority views towards the Chinese government. In the UK, Germany, Japan, Australia and India, relations with Beijing have suffered a significant deterioration. On balance, in assessing whether China is a recent geopolitical winner, the evidence is quite mixed.

Q: Is Europe a winner or loser?

Talha Khan: Europe continues to punch below its potential geopolitical weight. But after a poor start, its policy response has been more effective than many had anticipated. The European Union (EU) certainly has its fair share of issues, but its ability to push through arguably the severest crisis it has faced to date demonstrates its staying power. Further, the pandemic has reinforced the sense that Europe needs to define its own path independent of its relations with China and the US. This is a positive development and, when combined with a credible economic policy response, it means the EU has emerged stronger overall.

 

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