The EconomistMarch 21st 2020 BriefingThe pandemic 191A
character ina novel by Ernest Hem-
ingway once described bankruptcy as
an experience that occurs “two ways: grad-
ually, then suddenly”. The economic re-
sponse to the covid-19 pandemic has fol-
lowed this pattern. For weeks policy-
makers dithered, even as forecasts for the
likely economic damage worsened. But in
the space of just a few days the rich world
has shifted decisively. Many governments
are now on a war footing, promising mas-
sive state intervention and control over
economic activity.
The new phrase on politicians’ lips is
“whatever it takes”—a line borrowed from
Mario Draghi, president of the European
Central Bank (ecb) in 2011-19. He used it in
2012 to convince investors he was serious
about solving the euro-zone crisis, and
prompted an economic recovery. Mr
Draghi’s promise was radical enough. Poli-
ticians are now proposing something of a
different magnitude: sweeping, structural
changes to how their economies work.
There are unprecedented promises. On
March 16th President Emmanuel Macron of
France declared that “no company, whatev-
er its size, will face the risk of bankruptcy”
because of the virus. Germany pledged un-
limited cash to businesses hit by it. Japan
passed a hastily compiled spending pack-
age in February, but on March 10th supple-
mented it with another one that included
over ¥430bn ($4bn) in spending and al-
most four times as much in cheap lending.
Britain has said it will lend over £300bn
(15% of gdp) to firms. America may enact a
fiscal package worth well over $1trn (5% of
gdp). The most conservative estimates of
the total extra fiscal stimulus announced
thus far put it at 2% of global gdp, more
than was shovelled out in response to the
global financial crisis of 2007-09.That sinking feeling
In part this radical action is motivated by
the realisation that the coronavirus, first
and foremost a public-health emergency,
is also an economic one. The jaw-drop-
pingly bad economic data coming out of
China hint at what could be in store for the
rest of the world. In the first two months of
2020 all major indicators were deeply neg-
ative: industrial production fell by 13.5%
year-on-year, retail sales by 20.5% and
fixed-asset investment by 24.5%. gdpmay
have declined by as much as 10% year-on-
year in the first quarter of 2020. The last
time China reported an economic contrac-
tion was more than four decades ago, at the
end of the Cultural Revolution.
Grim numbers are starting to pile up
elsewhere, not so much in the official sta-
tistics, which take time to be published, as
in “real-time” economic data produced by
the private sector. Across the world, atten-
dance at restaurants has fallen by half, ac-
cording to OpenTable, a booking platform.International-passenger arrivals at the five
biggest American airports are down by at
least 30%. Box-office receipts have crum-
pled (see chart 2 on next page).
The disruption to international travel
will hurt trade, since over half of global air
freight is carried in the bellies of passenger
planes. The combination of disrupted sup-
ply chains and depressed demand from
shoppers should hit trade far harder than
overall gdp, if the experience of the last fi-
nancial crisis is anything to go by. Already,
the American Association of Port Authori-
ties, an alliance of the ports of Canada, the
Caribbean, Latin America and the United
States, has warned that cargo volumes dur-
ing the first quarter of 2020 could be down
by 20% or more from a year earlier.
Official data are now starting to drip
out. The Empire manufacturing index, a
monthly survey covering New York state,
in March saw its steepest drop on record,
and the lowest level since 2009. In Febru-
ary Norway’s jobless rate was 2.3%; by
March 17th it was 5.3%. State-level numbers
from America suggest that unemployment
there has been surging in recent days.
All this is fuelling grim forecasts. In a
report on March 17th Morgan Stanley, a
bank, estimated that gdpin the euro area
will fall by an astonishing 12% year-on-year
in the second quarter of the year. The Japa-
nese economy is forecast to contract by 2%
this quarter and 2% next. Most analysts see
global gdpshrinking in the first half of the
year, with barely any growth over 2020 as a
whole—the worst performance since the
financial crisis of 2007-09.
Even that is likely to prove optimistic.
On March 17th analysts at Goldman Sachs
noted that they had “not yet built a full
lockdown scenario” into their forecasts for
advanced economies outside Europe. Fore-
casts for America, which is at an earlier
stage than Europe and Asia when it comes
to the outbreak, remain Panglossian; very
slow growth in China and a big recession in
Europe could by itself be enough to send
the world’s largest economy the same way.
Steven Mnuchin, America’s treasury secre-
tary, warned this week that the country’s
unemployment rate could reach 20% un-
less Congress passes a stimulus package. A
negotiating ploy? With shopping malls
emptying, factories grinding to a halt and
financial markets buckling, lawmakers
may be loth to challenge the claim.
Despite stomach-churning declines in
gdpin the first half of this year, and espe-
cially the second quarter, most forecasters
assume that the situation will return to
normal in the second half of the year, with
growth accelerating in 2021 as people make
up for lost time. That judgment is in part
informed by China’s experience. More than
90% of its big industrial firms are officially
back in business. Its stockmarket had been
one of the world’s worst performers in ear-BERLIN, SHANGHAI AND WASHINGTON, DC
Governments are spending big, and trying new tricks, to keep the world economy
from falling dangerously sick
The economic emergency
Experimental treatment