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Política Internacional / 28/07/2020


What will the economy be like after the coronavirus

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What will the economy be like after the coronavirus

Fonte EL PAIS

Crisis caused by Covid-19 foresees new rules in commercial relations, consumption habits and the weight of the State vis-à-vis the market

Human beings and peoples are crossed by scars and memory. Both build what they will be and what they were. The hyperinflation of the Weimar Republic still weighs on German policies and their austerity; the Great Depression left Americans with a “not waste” feeling; and the 2008 crisis and its legacy of precariousness and inequity still impoverish the lives of millions of people in many Western democracies. But every disaster is different. The 1929 crash and World War II laid the foundations for the modern welfare state, and the 1918 flu epidemic helped to create national health systems in many European countries.

Therefore, each economic shock leaves a legacy of memories and wounds. Also of changes. It is impossible to think that this unimaginable experience of masks, social detachment, human losses and the cancellation of life will not have consequences after the end of the pandemic. It is too early to know exactly which ones. The longer the crisis lasts, the greater the economic and social damage. Analysts can take years and even decades to explain all the implications of what is lived these days. The paradox, or not, is that this virus explores the characteristics of life that we have given ourselves. Overpopulation, massive tourism, huge cities, constant air travel, supply networks thousands of kilometers away and extreme inequality in the division of wealth and public health systems.

All of this exposed the man's fragility. This was the authentic Covid-19 petri dish. What will come when it passes? “The epidemic has a wartime mentality, but a mentality that unites the whole planet on the same side. The war years are periods of great inner cohesion between countries and concern for others ”, says Robert J. Shiller, Nobel Prize winner in Economics in 2013. And he adds. "A long-term effect of this experience may be more redistributive economic and political institutions: the rich to the poor, and with greater concern for the socially marginalized and the elderly."

It is a hope. Of course, the current crisis is not as catastrophic as a world war and the devastation that our grandparents experienced in the Spanish Civil War, but its economic effects will be enormous. It is unprecedented in times of peace. The most similar event with which we can compare it, the financial crash of 2008, generated an intense change in the planet's economy. We went relatively high growth and moderate inflation to another anemic and with deflation. But the world was never the same again as it was before that year. “The coronavirus will cause a recession much higher than that of 2008-2009, since Greece's current debt is 175.2% of its GDP, and at equally high levels, which approach 100% of GDP, are Italy, France and Spain ”, warns economist Guillermo de la Dehesa.

Of course, it will cause pain for a long time. "Most economies will probably take two to three years to return to the production levels they had before the epidemic," says consultancy IHS Markit. Although there are other more important numbers. Harvard University epidemiologist Marc Lipsitch told The Wall Street Journal that he predicts that 40% to 70% of the adult population will be infected in one year.

Economic truth is governed by its own laws of attraction. Changes arrive. Large companies will have to rethink and how they produce. Many molecules are made in China, refined in India and, after a long journey, end up in European pharmacies and hospitals. "When the crisis passes, there will be a reindustrialization of Europe and the United States, due to the problems in the supply networks that many companies are suffering at these times," predicts César Sánchez-Grande, director of analysis and strategy at Ahorro Corporación Financiera.

Companies realized the danger of adding dependency and distance. But it is true that national production networks are also paralyzed in the event of a pandemic. It’s the same. A disconnect current circulates through the planet. “Even before the crisis, many US-based multinationals were already reconsidering their dependence on China. First for the costs, but also for the commercial war and the taxes ”, says Karen Harris, general director of the consultancy Bain & Company´s. It is not that globalization will reverse itself. “It is a reality that does not go back,” says José María Carulla, director of the studies service at Marsh risk consultancy. But it will have fractures. Capitalism too? Because its essence is the constant movement of people and goods. The foundations, certainly, of the entire pandemic. And how will a generation, especially young people, whose only experience of capitalism is a crisis, respond? Will it take to the streets?

It's too early to know. The parallels and meridians of the world, however, will apparently form a finer and less resistant weave. The conjunction of Brexit, the epidemic and the trade war between China and the United States foreshadow complicated years for the global village. “World well-being will be much greater if countries opt for cooperation, aid and solidarity in times of crisis, and for sharing information and scientific advances instead of doing it for autarchy and confrontation”, says Rafael Doménech, responsible for economic analysis at BBVA Research.

US Elections

One of the big changes could come in November at the White House. Crises do not re-elect presidents. Ford lost against Carter after the 1973 oil crisis, Carter lost against Reagan in the second oil crisis in 1979 and Bush lost against Clinton after the invasion of Kuwait. Economist Nouriel Roubini recalled these facts in those days - he predicted the 2008 crash - in Der Spiegel magazine. These scars and this memory leave the feeling that the United States will no longer be the leader of the world. "For the first time in its history, the greatest power on the planet has renounced the leadership of the sanitary and economic struggle while China responds with a very aggressive campaign to improve its public image," says Federico Steinberg, principal analyst at the Royal Elcano Institute.

is the strength of the stripes and the brightness of the stars? "Washington failed the leadership test and the world is getting worse for it," laments the Foreign Policy Kori Schake, director of foreign policy and defense studies at the American Enterprise Institute. But Europe is also not immune to this attraction of selfishness. The EU must protect its 500 million inhabitants, or many governments may demand the return of certain powers. It is impossible to rule out, we have seen, that the next few months will bring massive political repudiation. “It will depend,” says Kathryn Judge, a professor at Columbia University School of Law, “how high the price is in terms of human suffering, lost lives and the inevitable economic destruction [the Brookings Institution study center speaks of a global cost of 2.3 trillion dollars (12 trillion reais)] to come. Because the height of populism q u swept the planet after 2008 reveals the profound way in which public outrage can change the world ”.

History warns that disasters ignite xenophobia and racism. And it is increasingly common to find warnings of this crack. Even in the Old Continent the account of the "industrious north" and the "lazy south" is already thriving. Especially because of the difficulty that Europe shows in organizing a coordinated response. “The pandemic is showing, once again, the dysfunction of the euro, which puts member countries in a macroeconomic straitjacket. Unless the European Union can muster the will to transform itself into a true fiscal and political union, the eurozone will begin to separate, "predicts Paul Sheard, principal expert at the Mossavar-Rahmani Business and Government Center at Kennedy School. Harvard University.

Health systems

In these weeks countless interpreters of the tragedy proliferate, diviners of the drama, palmists of discontent and even those who, like the American Democratic politician Bernie Sanders, are able to reveal everything in six words: "Healthcare is a basic human right". "The health system is a fundamental human right". This is a legacy of the virus. There are many others. More work at home, the height of electronic payments, greater border controls, expensive and complex insurance, distance education and medicine, and less transoceanic travel and conventions. “We need to think about how to make the health care system more efficient, because in doing so it becomes more economical, viable and universal”, proposes Carsten Menke, responsible for the next generation research area of ​​the private bank Julius Baer. His narrative includes telemedicine, monitoring the patient at home after surgery and personalized medications to avoid wasting medicines.

Nothing very revolutionary, everything very urgent. Because the novelty is that hygiene grows as a priority on the agendas of companies and governments. Singapore is already planning mandatory cleaning rules. Stricter rules can boost online shopping in a way similar to how the 2003 acute respiratory syndrome (SARS) epidemic caused people to shy away shopping centers.

Governments will spend more to care for the health of their people and avoid the huge costs of pandemics. SARS alone took “according to the National University of Australia” 40 billion dollars (204 billion reais) the planet's economy. “For me it is a wake-up call, as Covid-19 is not as deadly as Ebola. The Administrations, at least I hope so, will organize themselves and be prepared for the next one ”, says Gael Combes, an analyst at Unigestion. And keeps going. “In a more economical sense, our desire to consume and travel is unlikely to change. Maybe big cruises will go out of style for a while, but people will not give up, if they can afford it, a long weekend in Barcelona ”.

This same faith in the recovery of consumption is demonstrated by Daniel Galván, director of GBS Finance. "It will come back strongly as the situation normalizes." We'll see. Because man uses “custom” as a barrier against the darkest night. The human being seeks refuge in storms. "We will be more attentive to our own, the public and what protects us, and the percentage of people in favor of increasing (even if they need to pay more taxes) public health spending will grow", says Carlos Cruzado, president of Gestha, the union of the technicians the Spanish Farm.

Huge public spending

Nobody wants to return to a new period of austerity like the one that emerged the 2011 debt crisis. But the plot of today is similar. Huge public spending and falling tax revenues. “If the crisis ends up impacting asymmetrically in Europe, less in the north and more in the south, because northerners had more time to prepare and cut the international health supply chain, giving priority to their self-supply, Calvinism will again impose itself: 'Sinners deserve to pay for their sins,' criticizes Carlos Martín, head of the economic office of the CC OO (Spanish Workers' Commissions). “This morality was already imposed during the previous crisis: the southerners spent on 'women and wine' [as Jeroen Dijsselbloem, at the time Dutch Finance Minister, said in 2017]. And the most shocking thing is that some Southern Governments bought this disapproval: ‘We live above our means'.

Now they can reason in the same way: the southerners want to pass on to us, again, the cost of their disability and disorganization. But the economy after the coronavirus brings, in principle, the solidarity requirement. It is clear that the fiscal measures launched by the Executive to stop the pandemic will leave a legacy of greater deficit and public debt. “These increases must be financed over the long term, even decades. With any of the solutions that will ultimately be taken (issuance of national public debt, European coronary bonds and others), the ECB (European Central Bank) will have a major role in financing secondary debt markets ”, says Rafael Doménech.

For now, the pandemic lives in the present. Getting the future of the economy right sounds complex. Because nobody knows what their final human and economic cost will be. Although there are always optimists. "I think that most businesses, and evidently the giants in the United States and other countries, will not fail to return to their business activity [when the crisis passes]," notes Bloomberg agency Edmund Phelps, Nobel Prize winner in economics. Other voices say the same. "We will overcome this and be better in 24 months", calculates, in a note, Rob Lovelace, vice president of the management company Capital Group. But two years is an unimaginable wait in millions of homes. Although in that period, perhaps, some perceptions may have changed forever. The “national security” precept will include the redistribution of wealth, fairer taxation and strengthening the welfare state. Society should also appreciate the value of works that have been neglected so far. Babysitters, social workers, janitors, elderly caregivers. Some of the most undervalued contributions call for a very different consideration. Perhaps the new era will offer the lesson that teachers and nurses are much more valuable than investment bankers and hedge fund managers.

One of those voices full of money is Larry Fink. The most powerful person in the markets. He manages seven trillion dollars (35 trillion reais) through BlackRock, the largest fund manager on the planet. Confined to his home, he wrote an 11-page letter to his customers, shareholders and employees. It defends the “brightness” of capital. "There are huge opportunities in the market," he says. And imagine a different future. “When we get out of the crisis, the world will be different. The psychology of the investor will change. Business will change. Consumption will change ”, perhaps people will avoid crowded places like shows and restaurants. "So only big networks and online orders will survive," asks Giles Alston, an expert at Oxford Analytica. It seems unlikely. But the T-shirts will have the word “resilience” stamped on them and on their labels we should read made in “decency”, “generosity”, “honesty”, “beauty”, “courage”.

Little by little, the economic future filters in the same way as light through a crack. "Monetary policies perpetuate the type of money scratch because inflation is no longer an issue," predicts Roberto Scholtes, UBS's strategy director. The economy will have to respond to new social demands. More expansive fiscal policies, greater pressure to redistribute wealth, and extraordinary spending divisions will have to be projected in the face of new epidemics and the climate crisis.

"The great economic crises in history since the Second World War have occurred with questionable political talent in the superpowers," says Emilio Ontiveros, president of International Financial Analysts (AFI). And it goes further. “A fourth phase of globalization is coming and we need greater multilateral coordination. The IDB, the Federal Reserve (Fed, the US central bank), the G20 and the Eurogroup need to act with greater ambition. Because, otherwise, people's savings, pensions, well-being will disappear. And society and the economy will be more impoverished after the crisis ”. Basic income and any similar distribution system are needed to protect people in times of emergency and calm. Especially after the inevitable increase in unemployment that the end of economic confinement will leave. UBS estimates a (temporary) destruction of two million jobs in Spain, and Goldman Sachs thinks that the world's GDP will drop 1% this year.

At that moment, the investor's psychology, caught in the paradox, will be both the same and different. "As in other situations that combine uncertainty and high volatility, there is a strong appetite for liquidity and the possibility that savers may choose to deposit against other investments," says Francisco Uría, responsible partner of the financial sector at KPMG. But the new horizon line will be designed by quoted funds (ETF) and sustainability in portfolios. And what will become of the real estate sector, which also created bubbles, contradicting the poet, who are not at all light and subtle? It will turn to technology. Real estate will go digital. As far as possible. Nobody buys a house without seeing it physically. “But in the short term, the impact is hard. People must solve other immediate problems first, then they will buy houses again ”, predicts Carlos Smerdou, chief executive of Foro Consultores Imobiliários.

Climatic emergency

Because in this evening of the Earth, only the climatic emergency and nature seem to benefit. The breath we give to the atmosphere is the only white light falling into an obscure pandemic. In China, pollution causes more than 1.6 million premature deaths, confinement, according to Stanford University scientist Marshall Burke, has saved the lives of at least 1,400 children under the age of 5 and 51,700 adults over 70 years.

We changed our existence and the way we work in a breath. Can't we change the way we inhabit the planet else? “The choices that central banks, governments and financial institutions make today will shape our societies for years to come. It is time to mobilize resources to put people's health and jobs first. For this reason, Administrations must invest in moving our economies away dependence on fossil fuels and the infinite growth that continues to fuel the disaster ”, asks May Boeve, director of the NGO 350.org.

"We are going to a recession not seen since the Great Depression"

Kenneth Rogoff, an economist and professor at Harvard, thinks that the strength of the exit the crisis depends on the health response.

Rogoff, one of the great economists of the 21st century, has the prestige of not writing twisted lines. In 2009 he published, with his colleague in the North American center Carmen Reinhart, a book whose title is a reprint of the days in which we transit. This is Different: Eight Centuries of Financial Folly (This is different: Eight centuries of financial need). Today, while talking to EL PAÍS through a questionnaire sent by email, that phrase has the same weight as a leaden sky. “The potential impact on economic policy is profound. But it can go in different directions, ”says Rogoff. “Will China's authoritarian system be seen as the solution or the cause of the crisis? The inept handling of the pandemic by the United States, both in its early stages (lack of testing) and in its later stages (lack of a unified national policy), will signal the beginning of the end of American domination or, ultimately, show the creativity and resilience of the country and the dollar? It will take a lot of strength.

The months arrive discounting a bleak calendar of days. "It seems that we are heading for a deep global recession, with a size never seen since the Great Depression," predicts the economist. “Hopefully it will be much shorter. Although the speed of the exit depends on how the virus develops and the response of the health system. But even in the best of cases, the situation is dire for emerging markets. Before the crisis they already had a very high external debt [between today and the end of next year, developing countries must deal, according to the UN, with the payment of 2.7 trillion dollars (13 trillion reais) in debt ] and declining growth. This will cause the collapse of many nations. Carmen Reinhart and I propose a payment moratorium on the countries most affected, ”says Rogoff.

Social depression and freedom

The pandemic will pass and it will be necessary to think through which streets and city we will walk. Because the Earth is in danger of falling into a kind of social depression caused by this time of distance. "A personal collapse that will be very hard on the most isolated and lonely population, such as the elderly," warns columnist Ezra Klein. It is the result of imposed but also voluntary confinement. There is already a cacophonous word that defines it: cocooning. “It is the tendency to spend more time at home, socialize less outside and make your home a stronghold”, says Patricia Daimiel, general director of Nielsen consultancy. Is that what we want? Feel safe and isolated? “We will probably discover (again!) That there are many jobs that can be done at home, saving fuel on commuting and waiting time in anterooms. The problem, however, is that we want to extend this privilege to very important activities such as education and love, which cannot fail to be in person: they demand hand-to-hand ”, reflects the philosopher Fernando Savater. Undoubtedly, the immense urgency of the present prevents us assessing which horizon the future will leave.

Israeli writer Noah Harari said in ‘The Financial Times’ that in these times of crisis, society needs to choose between “totalitarian surveillance and citizen empowerment”. People will face dilemmas. “And when choosing the answers, we should evaluate the alternatives and the long-term implications. New technologies are an excellent tool to prevent and avoid contagions and to organize our lives (think of online shopping) and economic activity (telework). But it is necessary to find a balance between privacy and security, and avoid falling into a control that manipulates people and endangers their individual freedoms ”, warns Rafael Doménech, head of economic analysis at BBVA Research.

China has dealt with the pandemic, among other measures, by monitoring millions of smart phones p to control their owners' contacts and body temperature. And in the space of two weeks, the prime ministers of Israel and Hungary were granted the possibility of governing by decree, without interference Parliament and the courts. But emergencies and disasters are also a breach of a new normal. Through it we see the possibility of other worlds and another society. There are losses, there are gains; air and life are filtered.

“We need a new care economy that integrates national public and private health systems as we did with banking systems,” says Carlos Martín, head of the economic office of the CC OO (Spanish Workers' Commissions). And deepens. “My proposal is a eurosystem of health that would be financed with the first tax on a European and community scale. A progressive tax on people's assets, whose surpluses would be used to add to the countries with less resources outside the EU, until covering the entire planet ... ”.


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