Insights

　　The post-COVID economy

　　14 Aug 2020

　　Governments deployed unprecedented policy measures to support people and businesses during the COVID-19 pandemic. The effects of many of these measures are likely to be felt long after the pandemic has receded.

　　The impact of COVID-related measures is likely to accelerate already established trends, such as de-globalisation, automation and sustainability and reverse decade-long trends, such as international mobility and urbanisation.

　　Health fears over close human contact and global travel, combined with concerns about the secure supply of essential goods and services, are likely to change the way people, businesses and economies behave.

　　Our Research analysts offer their insights into four key trends that may come to exemplify the re-shaped global economy - everything from trade to how and where people will live and work in the coming years.

　　1. Acceleration of de-globalisation trend

　　Global trade has expanded enormously since the early 1990s, and by the time of the 2008 financial crisis exports had reached nearly 25% of global GDP.

　　The downturn that followed the financial crisis shifted the focus to income inequality associated with globalisation. In particular, the integration of China’s vast labour force into the global economy raised concerns about the impact on the incomes of medium-to-low skilled workforces in advanced economies.

　　In addition, China’s trade and investment practices, as well its apparent ambition to become dominant in crucial technologies such as AI, eventually led to the US-China ‘trade war’ in 2018. with other major economies also increasingly concerned.

　　Pandemic adds new focus on reslience: from 'just in time' to 'just in case'

　　The COVID-19 pandemic has revealed new risks to globalisation – specifically related to China’s key role in ‘just in time’ global supply chains that rely on the timely delivery of intermediary goods for production to take place. If lockdowns are to become part of a ‘new normal’, global value chains will intermittently grind to a halt.

　　China has become the main or even only source for certain inputs, especially in information and communication technology. About one eighth of global exports flow from China, which makes it the largest source for imports in all core economic regions. More importantly, for the majority of these imports China is the dominant producer (more than 50% of imports of a single product) in electronic and machinery products.

　　Many markets have a 'supply dependency' on China

　　Source: US Census Bureau, Japan Customs and Tariff Bureau, Eurostat, Barclays Research

　　Such dependency could lead multinational corporations to rethink how to build resilience into their supply chains, with a focus on building inventory through ‘just in case’ production. Less trade with China and diversifying production centres could follow, as well as attempts to re-shore some production to domestic suppliers.

　　2. Reversal of hypermobility and agglomeration could be a truly new phenomenon

　　Travel is one aspect of globalisation which had continued to thrive since the global financial crisis, making up about 10% of global GDP. Flying between continents and crossing national borders had become increasingly frictionless, encouraging tourism, foreign education and labour migration.

　　International flights and tourism have been rising

　　Source: World Bank, UN WTO, Our World in Data, Barclays Research

　　Rapid urbanisation has also continued unabated as people gravitated to urban jobs and amenities. The number of cities with 5 million to 10 million inhabitants has more than doubled since 1990. and the number of megacities (more than 10m) has tripled from 10 in 1990 to 33 in 2018 and is expected to reach 43 by 2030. according to UN projections.

　　Increased global population has led to growth in densely concentrated cities

　　Post-pandemic: flying less and moving out of cities?

　　Overnight, the pandemic put a stop not only to tourism, but also to international business travel, and migration. Countries rely on air travel for different reasons and would be affected by a permanent reduction in air travel in differing ways. The travel sector may only recover partially after restrictions are lifted, as government regulations and changes in people’s behaviour reduce the ease and frequency of travel.

　　Exposure to travel and tourism takes different forms

　　Source: World Bank, Knoema, Barclays Research

　　The world’s estimated 164 million migrant workers who only temporarily travel to another country for work would be particularly impacted by reduced cross-border mobility. Not only do migrant workers bring economic benefits to their host countries, they often provide significant remittances to their home countries. In Nepal, for example, remittances make up 28% of GDP, while it is 13-22% for Honduras, El Salvador and Guatemala.

　　Also, could the threat of viral outbreaks trigger a move away from agglomeration? The already accepted