The economic impact of the containment is major, its continuation will make things worse. De-containment measures must be thought out rapidly. A deep rethink of supply chains will happen.
All economists agree that the containment imposed following the appearance of the Coronavirus Covid-19 will have a major economic impact. It is not a question here of re-examining the effects in too much detail, but it is clear that a sudden halt to production and services will have a severe impact on nations’ GDP. The longer this confinement persists, the more severe the impact, probably to an exponential extent because, while some companies have a bit of cash to endure a few weeks of paralysis, the longer the confinement will last, the greater the number of “businesses” that won’t be able to cope with the cost, in particular fixed costs. And, by ripple effect, their suppliers, landlords or others will in turn be impacted.
As in any crisis situation, the pros and cons of proposed solutions must be weighed. The difficulty of the current situation resides in the fact that political aspects are numerous. Many theories, sometimes conspiratorial, have surfaced. The fact remains that political calculation is omnipresent. It is almost impossible for a government – apart from the Swedish government – not to trigger containment when neighbouring countries do so. The unfortunate Boris Johnson is the first to pay the price for having believed in his population self-immunization.
But we are talking about global containment, practically the entire world population is subject to it. Common sense would have suggested to confine the infected people and let others work, with, of course, regular monitoring and strict protective measures such as gloves, masks and large-scale use of disinfectants. But this common sense cannot be applied for two reasons, the first is that nobody seems to have effective and large-scale test capacity yet, which would obviously be necessary (periodic tests for everyone), the second is the risk of clogging points of care (hospitals first, but not only). This is where politics resurfaces, where each and everyone goes on with his own pamphlet about the lack of preparation of the different countries, where the prophets who had predicted the resurgence of a coronavirus are put in the limelight. Criticism is not constructive, action alone makes sense. However, we are in a severe crisis situation and in a case like that, the precautionary measures that are acceptable when everything is well no longer make sense. The controversy over French Dr. Raoult’s cure is almost absurd: if such a cure has a chance of working, let’s go, let’s try. I do not know many people who have had Covid-19 (we may know later) but for as far as I am concerned, between risking death and enduring side-effects (that we are entitled to think limited), my personal choice would be obvious.
What seems more worrying to me is that, insofar as the whole world is affected, the circulation of the virus could resume. (see the Lancet article). So, of course, the deconfinement would be complicated as there is a risk of a rapid resurgence of the pandemic. I remain nevertheless convinced that populations as a whole have understood the gravity of the problem and that, for a great majority, they would be ready to accept certain binding rules.
Because some countries, certain geographic areas are less able to put effective measures in place. I have notably Africa in mind where financial or simply technical or practical means do not allow tests and where day-to-day survival prevents effective confinement. The probability that the virus will “resume” is therefore very real. Close borders? a false good idea because it means on the one hand discrimination, on the other hand and more prosaically, to put new barriers to the economy.
So, what should be done? my opinion is only an opinion but I, however, believe that WHO is right: TEST, TEST and TEST again. Detecting infected people, treating them, is the best way to combat the virus and its spread. Confinement can, conversely, increase the risk of having multiple local pools of resurgence.
The economic risk is MAJOR, probably still underestimated despite the stock markets freefall (the extent of it being historical). The spread of corporate failures will follow a pattern similar to that of a virus: exponential. Therein lies the danger. A cynic would say it will separate the wheat from the chaff. Maybe … but is it really desirable?
What is clear is that the corporate “survivors” are going to rethink their models of procurement, of management more generally. This will encourage shorter supply chains, encourage the repatriation of certain activities that had been relocated to the other side of the world to lower costs (in other words, take advantage of significant wage differences). No doubt global freight will undergo a fundamental change. But this will have a cost which will undoubtedly be difficult to pass onto the consumer especially since the latter will no doubt have seen his income decrease (at least temporarily) and his tax burden increase. So… a classic scissor effect. A fundamental change in priorities.
My conclusion is that the containment and its derived major economic impact must end very quickly unless risking an exponential aggravation of the difficulties. All health screening measures must have absolute priority to support this “deconfinement” and include strict health measures (gloves, masks, distances in particular). Finally, I think that the effort must be national, that production must resume to the detriment of administrations whose importance has swelled in recent decades. Everyone will have to roll up his sleeves and be pragmatic. Let us take advantage of this crisis to reassign people to productive things, including, of course, agriculture, as, if a lesson is to be learned from all this, it is that food is the first human need, only first to health.
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