Degroof Petercam AM: How to keep track of the latest health toll?

Most international top newspapers such as the Financial Times provide excellent information in this respect. Many of these sources are relying on the figures from John Hopkins University. Our World in Data is also offering easy access to the underlying data, in turn stemming from the European Centre for Disease Prevention and Control.

How to keep track of the policy support measures?

It’s far from easy to keep track of all the government support measures that have been put into practice. Crucially, effective policy requires central banks and governments to work closely together. Policymakers are not merely stimulating the economy, at least not at this stage. Above all, they are providing life support, to an unprecedented extent, in order to try to limit the hardship for millions and millions of firms and households. This is about maintaining the economic system so that we will see a faster economic recovery once the virus is brought under control. The OECD does a very good job in keeping track of the implemented policy support measures. Please find more information here (scroll down) in detail.

Note, however, that it’s impossible to just add up direct measures (such as medical resources, keeping people employed, subsidizing SMEs or public investment) and other supporting measures including deferrals, guarantees and liquidity provisions (let alone adding up QE, credit lines, lower capital keys for banks, relaxation of collateral...). In this recent blogpost Bruegel makes an interesting summary and comparison of the fiscal responses of EU countries, the UK and the United States.

What kind of economic crisis?

This is a crisis like no other. It is atypical in the sense that we are not dealing with an ordinary collapse in demand stemming from risks built up over time in the financial system itself. This is more like a self-induced coma as parts of the economy and society have been deliberately switched off in order to limit the spread of the coronavirus. Containment measures are having a disproportionate effect on consumer-facing sectors in particular. The crisis is also truly global and highly uncertain in nature since pandemics don’t respect borders and we don’t yet fully understand how the virus will behave.

The initial economic impact is absolutely brutal and requires relentless efforts to limit both the duration and the depth of the economic crisis. This is easier said than done. For example, in the United States (where the system of wage subsidy schemes is largely absent) unemployment will likely hit depression-like levels. It remains to be seen to what extent and how fast employment will pick up in the future. Obviously, this will depend on the strength of the economic recovery (see below) but undoubtedly many firms across the globe will take this crisis as an ‘opportunity’ to seek efficiency gains. Indeed, this pandemic and subsequent recovery will likely accelerate the ongoing digitization and automation of work (see below).

What kind of economic recovery?

Economic growth is still expected to turn positive in the second half of the year (actually already as soon as May) as restrictions are gradually being lifted. In that respect, the recovery can begin fairly quickly. That said, economic activity will likely remain significantly below its pre-virus path for several years as epidemiologists keep on warning that only a vaccine will provide a final solution. Consensus seems to be that we are still at least twelve to eighteen months away before it will be up and running. Meanwhile, consumers are expected to remain wary of crowded places. In addition, some restrictions will remain in place for many months and others may end up being re-imposed if a new wave of infections would hit (see below). In other words, while we are likely to see some impressive growth rates during the initial stages of the recovery, the comeback process looks set to be rather long and painful. Or, as Bill Gates has repeated several times: humanity will beat this pandemic, but only when most of the population is vaccinated. Until then, life will not return to normal.’ This is also what the world-renowned Belgian virologist Peter Piot says. The Economist calls it the ‘90% economy’.

What is the Chinese story telling us? While the total number of infections has stabilized, the economy has not. Activity is recovering but only gradually and output is still way below levels seen at the start of the year. Weakness will drag on because China is now facing severe headwinds from falling demand overseas.

Here you can find the complete article