“Nothing says that the health crisis must inevitably lead to an economic crisis”

Grandstand. The global economy is currently experiencing an unprecedentedly violent contraction in activity. In France, INSEE estimated on April 23 that economic activity was cut by a third from its normal level. By way of comparison, during the 2008-2009 crisis, the maximum decline was 4% and it had taken more than a year to reach such a scale.

Should we conclude that the current crisis will inevitably be more severe and more lasting than that of 2008-2009? This is not our opinion. This crisis is, in fact, nothing like a normal economic crisis. Besides, it is above all a health crisis, and nothing says that it must inevitably lead to an economic crisis.

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The current decline in activity does not follow the usual mechanisms: it is not the result of insidious vicious circles, where the fall in demand produces a fall in production, itself a source of fall in income and therefore fall demand ; nor is it the result of a generalized panic in which economic players make the decision to cut corners on their spending and investments.

Business support should limit bankruptcies

No, the current downturn is planned and organized. It was decided thoughtfully, with the idea from the start that it would be temporary. The stores are not closed for lack of customers, but because it is the order of the governments. Consumers themselves did not limit their purchases on their own initiative but were constrained by containment.

Admittedly, in general, the deeper the crisis, the longer it is and the more complicated the recovery, but to imagine that such a particular drop in activity follows the usual rules of duration and recovery does not make sense. If this crisis is well managed, the rebound in activity will be just as dramatic as its contraction. The conditions for achieving this result are, however, numerous.

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We must already ensure that productive capacities are well put to sleep and not destroyed. This means avoiding bankruptcies and layoffs. The measures taken go in this direction. Support for businesses, via loan guarantees, tax deferrals, bonuses, should effectively limit bankruptcies.

Normal resumption of life conditions

The establishment of partial unemployment in many countries will limit layoffs. The stimulus packages and the extraordinarily accommodative monetary policies are not to be outdone to support the economies. Commercial banks, so decried in the previous crisis, seem to have at heart to be irreproachable; many have gone even further in announcing that they will freeze any layoffs for 2020, including some long-overdue plans.

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