Covid-19 : a severe recession in the OECD countries cannot be avoided

26. March 2020
-IAM, News

Hugues Chevalier, Economist

European and world economies are severely affected by the health crisis due to the Covid-19 pandemic. Confinement measures set up by most of the European countries, the shutdown of ‘non necessary’ shops and of numerous industries and services will lead to an exceptional supply shock. The intensity of this shock will depend on the duration of the confinement. In China, the shutdown of the most affected area has lasted more than two months and is not yet over. However, the rest of the country has started to go back to work. Right now, In Europe, too many questions remain unanswered in order to predict whatsoever the intensity of the forthcoming recession. What is the real scale of the pandemic? As published by Imperial College, will it be 510 000 dead people in the UK? What will be the budget plans set up by the different countries in order to avoid the collapse of the activity? Germany has announced 550 billion of Euros, France 300 billion and the UK 330 billion of GBP. The Swiss government has so far announced a package of 10 billion of CHF, while the Swiss Institute of Technology has just said the country will need at least 100 billion of CHF. At the end of the epidemy, it will be very important that the ‘production’ infrastructure remains intact and can start again quickly. With too many bankruptcies, a quick rebound will of course not be possible. In the short term, recession will be unavoidable, but we cannot predict its intensity in the middle term due to too many unknown variables.