Conclusion
- An unprecedented crisis: Almost 100% of businesses are affected by the COVID-19 outbreak vs 60% in a « normal » recession.
- Main downside risks to growth (from U-shaped recovery to L-shaped recovery): Weak global aggregate demand (hysteresis effect), tourism not back to normal before 2021-22 (more than 15% of direct GDP contribution in Spain, Portugal and Greece), wave of bankruptcies in the service sector.
- New policy innovations: MMT, monetization, UBI to address social discontent and higher unemployment, YCC – Yiel Curve Control to limit the appreciation in interest rates.
- Regime shift back towards the 1950s: Big government and ultra-loose monetary policy (“lean against the wind” monetary policy). Long-term risk: higher inflation amplified by de-globalisation forces, debt monetization and the redirection of value chains.
- Higher taxation everywhere.
- Governments will stop using nominal GDP and will refer to wellbeing indicators.
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