If stopping for the economy is a bit like dying, restart is it a bit like resurrecting? Will the reopening after the closure forced by the epidemic be a "ready, go"? No. The night is long.
Lo tsunami has not yet completely passed: many parts of important sectors will inevitably be invested and, no less deadly than the wave, will come the reflux current, in the form of slow recovery, which will drag businesses and jobs away.
Let's first see what stage it is at economic crisis caused by the microscopic virus that we all know by now. And then we explain the reasons why it will take a long time to get back on its feet, i.e. to get to pre-epidemic levels of income, production and demand.
The crisis has reached a fourth stage, very dangerous: the lack of liquidity. The previous three were, we mention them in order of appearance: the difficulties caused to the manufacturing sector by the interruption of value chains, due to the closure of factories in China; the collapse of business in the tertiary sector, due to the forced mass abstention from social activities; there fall in manufacturing output, due to the lack of demand, components and workers (in some countries or regions all three together).
It is important to underline this last fall, because it has also occurred in economic systems, such as the South Korea, where there has been no restriction on the movement of people to control the epidemic. Therefore, it is a very indirect effect of the measures taken elsewhere, which accentuates the recession. We will see how and to what extent the foreign channel will also be able to act as a driving force in the recovery phase.
The lack of liquidity is due to sharp decline in turnover (very often zeroed) and receipts (distinct from the first, affected by the lengthening of payment times), while many exits continued to exist, despite the cut in labor costs and the postponement of financial, tax and social security charges .
The draining of cash is being counteracted by economic policies with measures credit support. Which must have two characteristics: the speed of delivery and the sustainability. Without the former there is failure today, without the latter there is failure tomorrow. The absence of the first is more serious, because the lack of the second can be remedied with public budget interventions aimed at alleviating private debt.
At this moment no one can quantify theextent of the recession. There are few statistics on which to base estimates. And we are so out of line with the ordinary behavior of the economy that econometric models easily give the wrong indications.
Sometimes even the indicators are distorted. For example, the PMI is artificially held up by the lengthening of delivery times, which is usually a sign of demand pressure on production capacity, while in this case it is explained by the decrease in supply for sanitary measures.
Or they come misread: China's manufacturing PMI back above 50 was interpreted as a recovery of the previous level, while it means that activity is a little less sluggish.
We just know what a recession is very deep, so much so as to even lead to a rare reduction in world GDP, as they had easily deduced from "Le lancette dell'economia" of 7 March (, promising). From there it will be necessary to go up.
How fast and intense will be the recovery? To cheer spirits (even his own), Jerome Powell, excellent Chairman of the FED, says it will be "robust". But then he adds that the return to normal activities will be gradual and hesitant ("attempts"). Nor can he say when it will start, depending on the end of the most critical phase of the contagion. And he underlines that the more you stay at home and keep yourself healthy today (ergo: the more GDP falls), the sooner you start again. There convergence between people's health and the economy is no longer questioned by anyone (and it is explained , promising).
However, there are ten reasons to doubt that it is a resurrection: 1. the stop of the economies it was not simultaneous and those who start again first meet the headwind of those who stop later (this can be read clearly in the fall of the South Korean PMI in March); 2. you will have fear of restarting the infection and therefore there will be prudence in behavior and in the easing of restrictive measures; 3. we'll have to walk around with gloves and masks: not the dress code ideal for shopping; 4. they will shifts both to work and to leave the house: this reduces production momentum and consumption; 5. some businesses they will never reopen and some sectors will not restart right away; 6. i international travel they will remain on quotas, for fear of re-importing the virus; 7. the value chains they will take a while to run smoothly; 8. the strong decrease in income will limit spending; 9. savings losses, accumulated debts and fear for tomorrow increase the propensity to save; 10. falling profits and uncertainty about future demand lower the propensity to invest.
Therefore it is very probable that the recovery will be an inverted «J», with a long and slow ascent towards previous activity levels. The pre-epidemic values will hardly be revised before 2022.
Two pluses. First: countries learn from each other and equip themselves better and faster, thus shortening the duration of the recession and bringing the time of recovery closer. Second: economic policy is responsive and immediately adjusts the measures where flaws emerge in the interventions, both on the monetary front and on that of budgetary policy, and therefore greatly reduces the permanent damage.
Be careful, however, not to consider these supports for businesses and households super stimuli which will make growth stronger: it would be like thinking that the lung ventilator that enriches a coronavirus patient with oxygen allows him, as soon as he leaves the hospital, to run the marathon like Abebe Bikila.
