President of the Cahiers Verts de l'Économie since 2009, Jean-Pierre PETIT has been elected best market economist several times at the Extel France Financial Analysis Grand Prix. Author of several award-winning books, including "La finance, autrement" (Finance, autrement), which won the Prix Spécial Turgot, and "La Bourse, rupture et renouveau" (The Stock Market, rupture et renouveau), which won the Grand Prix Turgot for best financial economics book, he gives us his impressions of the before and after of COVID.
Global markets are recovering and yet the media are emphasizing the economic risks of a "second wave" of COVID-19 ...who's right?
Rather the markets! They reacted sharply to the downturn between February 19 and March 23, but now they are tending to rise, considering that the pandemic is behind us in terms of economic impact.
A few months ago, the "Cahiers verts de l'économie" envisaged a global recovery mainly in the 3rd quarter of 2020, then slowed down by health restrictions, then a gradual normalization of activity.
Why?
The reproduction rate of the virus is much lower than last January/March: close to 1 worldwide. This means that a few partial and localized measures are now making it possible to contain the pandemic. The testing capacity has progressed enormously (global level of 75% by Oxford Economics), the health system in the western world is better prepared and less saturated. Health standards, which were virtually non-existent at the beginning of the year, have become widespread. The world's population is more sensitive to barrier gestures, immunity is broader as contamination increases around the world, and the drop in international air transport means that the virus is much less widespread than it was last February. Finally, according to the latest surveys conducted among scientists, the probability of having a well-disseminated vaccine by the end of March 2021 is 49%. All these reasons justify the recovery of the markets.
Nevertheless, the pandemic has had a major impact on the macro-economy?
Yes, it has. We have experienced a 15% annualized decline in world GDP in the first half of the year: 3 times the decline recorded after the collapse of Lehman Brothers! The USA should recover and end the year at -4.5%, Europe at -6.5%, growth in China would only be 2.5%. This is the 4th worst recession in world GDP per capita for 150 years.
In addition, the savings rate has exploded and household confidence remains low.
Nevertheless, the mobility indices, which had collapsed from February onwards, have been rising since April and a plateau since August, not calling into question their significant improvement. Services with strong human proximity have been devastated, events, tourism, hotels, culture, air transport and aeronautics, but since May some indicators have been improving, concerning dinners out.
The situation has rather worsened in the emerging world ...
Scandinavia, Switzerland, New Zealand, Taiwan and South Korea are the countries that have so far weathered the pandemic best.
Looking at the BRICs, China is currently stabilized, Russia and Eastern Europe are relatively unaffected, while Brazil, which is in great difficulty, has been improving its situation since July. India, on the other hand, is experiencing a deep recession not seen since 1947, with a still exponential growth in VID19 cases.
The southern states of the United States (California, Florida and Texas) are showing a good recovery.
In Europe, the situation is deteriorating in Spain and France if gross contaminations are included. But if we adjust infection and testing, we are far from the situation of last April. Generally speaking, the ratio of deaths to infections in the world has fallen since mid-April.
Have the Governments responded well?
The proactivity of the States and the Central Banks is good news. Europe has abandoned absurd budgetary rules, such as the criteria for limiting public deficits to 3% of GDP, and the agreement on a European recovery plan is historic. The flow of credit to companies has been maintained. And we have not suffered, at the global level, from strong protectionist waves, nor the fall prophesied by some of the democracies.
At the monetary level, the fall of the dollar is favorable to emerging countries. Monetary policies are accommodating, and will remain so, with low interest rates for a very long time.
One should not necessarily be pessimistic.
In spite of the public debts?
Public debt is not a short-term issue for countries that borrow in their own currency, because in this case it is the central bank that buys back the debt. I'm more worried about corporate debt, but a big mobilization is taking place to ensure their refinancing, and therefore their survival. Moreover, the recession we are experiencing is very short and profitability is on the rise again in the US and China.
This massive interventionism will limit the damage.
And the world "after" COVID ?
Mass tourism, air transport and aeronautics will be in trouble for a long time to come.
We will undoubtedly see a strengthening of the regionalization of value chains. China will focus on its domestic market. The same goes for the euro zone. The acceleration of teleworking is foreseeable. With the pandemic, we are rediscovering the costs of deindustrialization, which is one of the causes of the desertification of certain territories, not to mention here the health dependence on China... The pressure of income, for household goods, will make them choose low-cost products, so I do not believe that massive relocation is imminent. On the other hand, relocating premium activities such as pharmaceuticals and medical equipment would make sense...
