The economic crisis risks linked with coronavirus

Article
Eleonora Mazzoni
Pandemia

In an interesting article by Professor Rony Hamaui published on lavoce.info, he underlines how the economic crisis produced by the coronavirus displays some particular features and is taking place at a delicate moment in the international economic scenario. For this reason, a strong coordination is required, not only concerning health policies, but also the economic. The emerging and future crisis, generated by the epidemic itself and by the measures to contain the contagion, has been experienced in an extraordinarily large number of countries with very different economic, political and social aspects. Moreover, the crisis has affected both the supply side (failure to produce and breakdown of the supply chain) and the demand side (collapse of travel and tourism and more generally fear among consumers), and, at the same time, is revealing an immediate reduction in the globalization of the world economic system.

All this is taking place at a time when the world’s economy was already slowing down, and when the room for action to be pursued through the already largely flexible economic, monetary and fiscal policies is still limited.

Instead, the government reactions have been inconsistent, misaligned and selfish. This is particularly evident within the European Union. Far from fostering cooperation and harmonized intervention, each country has started undertaking actions through appropriate measures only when they are faced with evidence of an increase in daily cases of virus infection.

A differentiated regionalism at its extreme, where nobody really seems to care about taking mutually supportive and cooperative steps.

However, perhaps it is still not the time to ask about what has happened to the European principle of solidarity. We will be asking ourselves this when the new economic crisis once again will hinder compliance with the financial constraints of sustainability and the achievement of the medium-term objectives.

We will ask ourselves questions when the slowdown that was already significantly underway in Italy, Germany and France will change into a deep recession. We will probably wonder, but all together, too late, how to cope with the new crisis.

As far as Italian companies are concerned, the Confindustria Study Centre informs us, starting from a survey involving over 5,500 companies, that the spread of Covid-19 has had a major impact on their business.

The spread of Covid-19 in Italy, so far, has mainly caused damage to company turnovers, as reported by 27% of respondents. More modest (6%) are the number of respondents who have suffered only effects related to the damage of production input, and it also appears that almost 20% of respondents have experienced problems of both types. 17% of respondents felt that the damage was significant because it would involve the reorganization of their business plan. About 10% of the companies already fear that they will not be able to achieve the targets for the current year or may even have to resort to downsizing their company structure. Given the high degree of uncertainty, many companies still do not feel able to respond.

5% of respondents stated that they had already had to resort to the use of the ordinary redundancy fund following the spread of Covid-19.

The drop in demand seems to be the biggest concern and is linked to the reduction in consumption, the postponement or cancellation of orders and, for the tourism sector, the cancellation of bookings.

The underlying evidence that strongly emerges is that of fear, and the uncertainty that fuels it. Most of the companies that participated in the questionnaire pointed out the difficulty in estimating the extent of the damage, given that the national and international outcomes of the spread of Covid-19 are still ongoing, therefore, the reactions are not clear and the dynamics of supply and demand are still difficult to predict in the long term.

Translated by Camilla Palla

Direttore Area Innovazione dell'Istituto per la Competitività (I-Com). Laureata in Economia Politica presso l’Università degli studi di Roma La Sapienza, con una tesi sperimentale sulla scomposizione statistica del differenziale salariale tra cittadini stranieri ed italiani.