Economy gets hit but recovery expected after that
The coronavirus is disrupting the global economy, significantly depressing economic growth in the first half of this year. A contraction in some countries can be expected in the process.
Another effect is that medium-term growth prospects risk deteriorating. This would not be so much directly due to the corona virus, it is to be expected that over time the virus will come under control and disappear, as indirectly. As many companies see their sales decline, reorganizations and rounds of layoffs are looming. Falling stock prices typically depress consumer confidence in the economic future, something that is further reinforced by persistent news coverage of developments in the financial markets. A poorly-mannered consumer is a consumer who keeps their hand on the purse strings, which negatively affects growth. Together with rising unemployment, there is a danger of a negative spiral of lower confidence, declining consumption, new layoffs, even lower confidence et cetera.
That negative spiral without action
You can expect that negative spiral if everything else would remain unchanged. Such as that the central banks and governments of the affected countries, do not act to stimulate their economies. However, that is not happening. They are taking action and that action can safely be called forceful. Shortly after the central banks, governments also took action. In Europe, the German government decided to offer companies unlimited credit lines to prevent bankruptcies. Land of Bavaria is even willing to become a temporary shareholder in companies struggling due to the coronavirus. The guarantees from the government in Berlin initially amount to 550 billion euros (which is roughly equal to the size of Switzerland's total economy and slightly less than the total Dutch economy) but the finance minister immediately added that there is no ceiling on the support the government is willing to provide. His Economic Affairs colleague underlined this by saying that the announced support is just the beginning. Chancellor Merkel indicated that she is putting aside even the in Germany virtually sacred pursuit of balanced budgets. In the midst of this extraordinary situation, the government will do everything possible to keep the economy afloat and we will see where the budget ends up, Merkel said. She added that fighting the corona crisis comes first.
Measures
The finance ministers of the euro countries also met and announced a package of measures worth more than 10 percent of the currency union's economy. This support comes, for example, in the form of temporary unemployment benefits, suspension of payment obligations of companies, guarantees for loans et cetera. Tens of billions of euros have also been earmarked for immediate investments in healthcare and as support for SMEs. Ministers indicated that more measures could be taken. For example, the European emergency fund á over 400 billion euros has not yet been mobilized. Elsewhere, such as Britain, Australia, Japan, Canada, South Korea, the U.S. and China, many measures have also been taken to support the economies of those countries.
The reality is that the economic damage from the coronavirus cannot be avoided. Economic growth in the first half of this year will inevitably be very low or even disappear altogether. Therefore, the aforementioned measures aim to reduce the negative impact on economic growth in terms of duration and severity by, for example, preventing the emergence of the aforementioned negative spiral. In other words, central banks and governments are not trying to prevent a recession but a depression! Given what steps have been taken, there is a good chance that they will succeed.
Source: Gold Republic
