June 21, 2021

Traces in the coronavirus economy

Empty supermarket shelves because of fear. The last time that happened in Spain was on 23-F. The cause was quite different on its surface. But at the bottom of both cases was panic at not being able to leave home, shortages and widespread chaos. The safest thing, according to most experts, is that the coronavirus, like that assault on Congress, remains in a scare. However, when the health crisis is over and calm returns to society, its footprints will continue to be palpable in an economy that will not recover from overnight.

The coronavirus is assuming a tremendous drop in activity, leaving disappointing figures. The United Nations Conference on Trade and Development (UNCTAD) foresees a decrease in flows of Foreign Direct Investment (FDI) worldwide of between 5% and 15% in the period 2020-2021. This type of decline will cause the slowdown, which was already being experienced, to increase. It also predicts that the global economy grows below 2.5%. Therefore, it is normal that this year, and perhaps the next, most of the affected countries do not meet their growth targets.


Precisely, in early April, the Gross Domestic Product data for the first quarter of the year will be published. And they promise to be gloomy because the economic consequences of the coronavirus crisis “are limited to the short term, where A negative demand shock like the one we are experiencing has a strong impact on what is the basis of GDP, such as consumption and the foreign sector.», Sustains the principal investigator of the« think thank »Civism, Javier Santacruz.

The first example has been given by Japan, one of the countries most exposed to the influence of China and the coronavirus. Its economy has decreased by 7.1% in the last three months, a percentage that is hardly recoverable in the short and even medium term.

Nadia Gharbi, economist at Pictet WM, says that, for the moment, «services and manufacturing are being affected»Due to the restrictions imposed by European governments on travel, the massive concentrations and the difficulties that supply chains are going through. Tourism, the banner of the Spanish economy, “is very sensitive” to these circumstances, says Gharbi. So we have to be prepared for a lousy fact in the first quarter.

In Europe, no country is saved from the damage of this health crisis, but the other two territories with the worst records could present would be Italy and Germany. Gharbi explains that «February Eurozone surveys have already revealed early signs of disruption in supply chains, as well as lower demand for European exports (the Eurozone is more open than the United States or China itself). Germany is particularly exposed to Chinese consumption and disruption of the supply chain, while in Italy the most affected regions, Lombardy and Veneto, represent around 30% of Italian GDP and 40% of its industrial production. In addition, I know that they are one of the most visited regions of the transalpine country », where tourism represents 5.5% of GDP, 13% with indirect effects.


Companies related to this sector, travel agencies, hotels, airlines, will not recover lost profits. And we will see to what extent they will stop entering, because if this crisis lasts until a high season, that of Easter, the blow would be very hard for the annual accounts, so much so that it could be dragged down the following years by many aids that governments provide.

Another sector to which long-term accounts can be unbalanced is that of insurance. Their companies are carrying out quite high expenses that just two months ago they did not foresee. 10.3 million people in Spain have health coverage and the coronavirus will cause them to turn to it more securely than normal.

From the employer that represents these companies, Unespa, they declare that they will assume the costs to support public health. In addition, “the assistance insurance, meanwhile, will cover the medical care received by those insured persons who become infected with the coronavirus during a trip within the limits set by the contract. Assistance insurance usually also includes the coverage of travel, accommodation and living expenses of at least one companion».

Many companies have wondered who is responsible for the expenses incurred for flights and stays that they will not enjoy due to the cancellation of events. It depends on how you were hired. If you have done it for free, you have no choice but to accept the lost money, which is a great decrease for small companies, and if you have done it through a travel agency, it is probably the one that will bear the costs. Of course, agencies are not going through their best time, and a good number of returns for an SME can be definitive for their business. Although governments extend measures to prevent it, everything will depend on the uncertain impact and duration of this health crisis.

The postponement or cancellation of sectoral conferences will seriously harm manufacturers they cannot expose their new products to buyers. Let us take the case of Spanish wine, which attends numerous foreign fairs so that foreign drink and food entrepreneurs know their latest news and purchase them. A large part of the export is based on this, which will be paralyzed by the suspensions.

Consumption and productivity

Due to this and the reduction in daily consumption, in many sectors a “Stock” of products that until the situation is normalized they will not be sold again. And in order not to continue accumulating stock, new manufacturing will be delayed or the production rate will be lowered. Because, in addition, as the decline in activity has been for such a long period that so much absence of demand has accumulated that it will be impossible to recover it all.

There will be no “explosion” of purchases that releases the “stock”. Although at the time when infections and deaths begin to drop, we will experience a return of the demand to positive levels and a V-shaped recovery», Explains Santacruz. “Consumers have more extreme reactions than entrepreneurs”, therefore, first there will be a peak in demand, then a second stage in which it will be bought, but not as much as usual, and finally, a new peak before returning to normal.

It will be then when productivity recovers its usual rhythm. It is already happening in China, focus of the virus but where the situation is considered controlled. It should recover even faster “when the service sector is most affected”Santacruz points out. So in Spain, where these activities have been the most affected, we would overcome before the Asian giant.

Supermarkets are the ones that are experiencing a few days of greater consumer madness. Images of empty shelves have circulated through the networks, especially of products such as milk, canned goods or meat. The workers of the establishments themselves have confessed that they have never experienced similar chaos, with eternal queues. A circumstance that has taken place in Madrid after the announcement of the suspension of classes for two weeks. That news was the one that really made people alert, as if they admitted that the crisis is more serious than it seemed.

It is worth asking if this excess purchase of food will cause supermarkets to empty out of people in consecutive weeks because they already have enough. Santacruz does not believe that this will happen, «since the demand for food products is usually more stable than other products for being necessary consumer goods ».


If the supermarket shelves are being left empty, in the public coffers there will also be more gaps than expected at this point in the year by the administrations. Circumstances have forced the Government to carry out extraordinary expenses that can upset the Budget accounts.. The aim is to support citizens so that they reach the end of the month and SMEs so that they do not have to close.

Aid to parents who do not go to work (whether salaried or self-employed) due to having to stay at home looking after their children (before the closing of schools) will be around 50 million euros, calculates the Ministry of Social Security. In addition, income will be reduced because tax deductions and reductions in contributions will be approved for self-employed workers affected by the coronavirus.

The goal of measures taken by governments around the world is to prevent risks from becoming systemic, that are prolonged in time because they harm the two main actors in economic activity, consumers and companies. In China, where the impact of the crisis has been greatest, “a VAT exemption for small taxpayers has been approved in Hubei and tax cuts in other parts of China, exemption from the payment of social security payments for SMEs until the end of June and half for large companies. The total fiscal stimulus so far is 1.2 trillion renminbi (the country’s legal tender) and three trillion. Includes $ 300 billion in credit support for businesses related to virus control, $ 350 billion in low-interest credit lines provided by banks to SMEs, and debt repayment deferral until the end of June for businesses and individuals affected by the coronavirus. »Says Dong Chen, economist at Pictet WM.

Central banks have also taken steps. Javier Quintana, CEO of Moneycorp Spain, comments that «the Federal Reserve (Fed) announced yesterday a drastic increase in liquidity in the money markets, after last week it had cut interest rates by 50 basis points in an unexpected way ( from 1.5-1.75% to 1-1.25%). The market, meanwhile, discounts a new rate cut by the Fed this March and some analysts are already talking about possible additional cuts in the spring. The European Central Bank, on the other hand, has less ammunition with which to act and could opt for new liquidity measures instead of cutting rates, measures that are not expected to be as agile or as impressive as those already being adopted by the Fed since U.S”.

These measures agitate the financial sector, which has been going through an uncertain period in Europe for years, with the threat of mergers and closings, due to the low levels of profitability caused by prolonged low interest rates. In addition, the entry of exceptional liquidity in the markets benefits the activity but generates imbalances and excessively appreciates the assets.

If this health crisis spreads and, with it, financial stimuli, they will harm a sector that is already shaken because the coronavirus has caused “unprecedented mass sales in the financial markets.” It only remains to trust that, as Santacruz points out, «the long-term effects are very few, taking into account other pandemic phenomena in the last 20 years».

The contagion of fear

If the contagion of the virus is dangerous to health, that of fear is the most damaging to the economy. The Community of Madrid and the Basque Country have approved measures that will affect economic activity because the situation has worsened in both regions. However, in the rest of communities where the coronavirus has not affected so much, that the demand stagnates due to the panic to a possible contagion could be a hard blow to the local economy without a real reason. For this reason, it is necessary to measure with reason the circumstances before acting to avoid aggravating a situation that, According to ECB Director Christine Lagarde, it could resemble the 2008 crisis. Ultimately, the coronavirus could anticipate the recession that experts were already approaching.

The EU takes out all its artillery

The European Union has taken out all its artillery so that the damage caused by the coronavirus crisis does not excessively damage the economy. For this, it has approved a 25 billion euro response fund that guarantees the operation of the activities most affected at the moment. For starters, the EU will take out 7.5 billion that it will obtain from the waiver of the return by the States of the non-executed pre-financing items. In addition, the institution has carried out has approved a financing of more than 100 million euros to seek a cure against coronavirus.


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