The Eeonomist March 21st 2020The economic emergency
Experimental treatment
BERLIN, SHANGHAI AND WASHINGTON, DC
Governments are a~nding big, and trying new tricks, to keep the world economy
from tailing dangerously sickA
CHARACTBR IN a novel by Emest Hem-
ingway once described baolcruptcy as
an experience that occurs •two ways: grad-
ually, then suddenly". nie economic re-
sponse to the covid-i.g 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 politici.ans' lips is
"whatever it tates• -a line borrowed from
.Mario Draghi. president of the European
Central Bank (ECB) in 2ou-i.g. He used it in
2012 to convince investors he was serious
about solving the euro-zone crisis, and
prompted an economic recoveiy. Mr
Draghi's promise was radical enough. Poli-
ticians are now proposing something of a
different magnitude: sweeping, structul
changes to how their economies work.
There are unprecedented promises. on
.Mard1.16thPresident Emmanuel.Macron of
Flance declared that •no company, whatev-
er its size, will face the Iiskofbanlauptcy"
because of the virus. Germany pledged un-
limited cash to businesses hit by it. Japan
passed a hastily compiled spending pack-
age in February, buton.Marchioth supple-
mented it with another one that included
over 1'43obn ($4bn) in spending and al-
most four times as much in cheap lending.
Britain has said it will lend over £3oobn
(15% of GDP) to firms. America may enact a
:fiscal package worth well over $1tm (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 Jn response to the
global financial crisis of 2007-09.That 111inlring feeling
In part this radical action is motivated by
the realisation that the comnavirus, first
and foremost a public-health emergency,
is also an economic one. nie 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%. GDP may
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, atthe
endofthecultul31Revolution.
Grim numbers are starting to pile up
elsewhere, not so much in the official sta·
ti.sties, which take time to be published, as
in Mreal-time-economic data produced by
the private sector. Across the world, atten·
dance at restau1mts bas fallen by half, ac·
cording to Opettl'able, a booking platform.Briefing The pandemic 19International-passenger arrivals at the five
biggest American airports are down by at
least 30%. Box-office receipts have crum-
pled (see chart2 on next page).
The disruption to international tr.1.vel
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 tDde 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 wamed that cargo volumes dur-
ing the first quarter of 2020 could be down
by20%ormorefroma year earlier.
Official data are DOW 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 I.owe.st level since 2009. In Febru-
ary Norway's jobless rate was 2.3%; by
.March17th it was 5.3%. State· level numbers
from America suggest that unemployment
there bas been surging in recent days.
All this is fuelling grim forecasts. In a
report on March 17th Morgan Stanley, a
bank, estimated that GDP in the euro area
will fall by anastonishing12% year-on-year
in the second quarter of the year. The Japa-
nese economy is forecast to contract by 2%
this quarter and 2% neirt. Most analysts see
global GDP shrinlcing 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 nnot yet built a full
lockdown scenario" into their forecasts for
advanced economies out.side 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 .l.aqest economy the same way.
Steven Mnucb.ln. America's treasury secre-
taiy, warned this week that the country's
unemployment mte 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
GDP in the first half of this year, and espe-
cially the second quarter, most forecasters
assume that the situation will retum 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
go% of its big industrial firms are officially
back in business. Its stockmarket had been
one of the world's worst performers in ear-~