Infection Risk, Uncertain Business Behaviour: Why Reopening Economies Will Be a 'Massive Experiment'

As the United States begins to reopen its economy, debates rage world-wide about how to balance economic hardship with a public health hazard.

With no easy answers to the dilemma, Mohamed El-Erian, chief economic adviser for Allianz, says the focus needs to be on learning from the "massive experiment."

"The reality is that we are reopening," El-Erian said Tuesday in an interview on Quest Means Business."We need to judge not only the risk we took with respect to infection, but how people will behave, how businesses will behave."

"I don't know what the right answer is, but...we've got to learn and collect data and adapt quickly," he said.

Don't expect a smooth reopening, either, El-Erian warned. "I think of this as, we used to live in this really sophisticated jigsaw puzzle that was put together... Now we're trying to put the puzzle back together and we don't have all the pieces," he said.

Neither the global economy nor the US economy are reopening in a synchronized manner. That uneven progress could, for example, make it much harder for manufacturers that rely on materials from abroad to recover. On top of that, many economists expect people will be slow to resume everyday activities such as dining in restaurants and going to movies as they did before the pandemic. That lag will show up in the economic data as well.

Fears of a second wave of infections are also threatening to slow recoveries, as South Korea and Germany, both of which are reopening their economies, have seen clusters of new Covid-19 cases emerge.

In a separate segment on Tuesday, Nobel Prize-winning economist Paul Krugman said a reopening in the United States "in any significant degree" would lead to a rise in coronavirus cases. "We have flattened the curve but we haven't crushed it."

The best bet for a fast economic recovery is to continue the lockdown and build out testing and tracing systems across the country, Krugman said.