translated dutch article from trouw.nl (dutch newspaper) about the economic consequences of the new corona virus
ING, van lanshot = dutch banks
CPB = Centraal Planbureau =Economic Policy Analysis
--------------------------------------

The economic impact of 'black swan' corona is not easy to predict
What was unthinkable until recently has happened: a virus is gripping the economy worldwide. It is certain that there will be a recession, it is also guessing for economists.

Elisa Hermanides

A black swan. Europeans fantasized about it for centuries, but they were sure that only white swans existed. Until they set foot in Australia in the late seventeenth century and saw a black specimen for the first time.
In this way, the world is now also experiencing something that has been fantasized about until recently. For the first time since the Spanish flu, a virus is damaging public health and the economy worldwide. After the impact of earlier viruses such as Sars and Mers was not so bad, the outbreak of the coronavirus has now become the most unimaginable reality. Scientist and securities dealer Nassim Nicholas Taleb came up with an economic theory about such an unlikely event: the theory of the black swan, which is unpredictable and has a disruptive effect on society.
How do you deal with that? Nobody knows exactly. Doctors and scientists are searching, but economists also have little guidance in devising and calculating what this black swan can mean for the world.

How does the virus behave and how do we behave?
"There is a huge range of assumptions you can make if you want to sketch scenarios," said Menno Middeldorp, chief economist at Rabobank. “There are so many options that it is unclear what will happen. You can see that in the analyzes of economists from all over the world: they vary enormously. One thing is clear: we are going to see a shrinkage. There is no other option, because a lot has stopped. What part of the economic damage can still be made up depends on how the virus spreads, what measures are taken and whether they are successful. ”
"The main questions are: how does the virus behave and how do we behave," said Marieke Blom, ING chief economist. “We have now put health at the very top as a priority. The question is how long it remains socially acceptable to lock ourselves up for so long. And: what economic damage we are prepared to take for public health. ” Blom estimates that about 20 to 30 percent of the economy is halted due to the corona crisis. "The longer that takes, the more the misery of the affected sectors will seep into the rest of the economy."
Governments worldwide are doing their best to help the economy bridge the virus outbreak with large aid packages. Blom: “Ideally, the economy should be put to sleep, as it were, and then wake up again without damaging too much economic tissue. But the longer the downtime, the greater the damage and the more difficult it is to restart. Employees have now lost their jobs, devices are dusted, social capital is gone. ”

Hope the bridging oxygen is sufficient
According to Luc Aben, Van Lanschot's chief economist, the question is whether the emergency measures can help SMEs and consumers through this virus outbreak. “Ultimately, small and medium-sized enterprises are the engine of the economy. We must hope that the bridging oxygen these companies are now getting is sufficient. Otherwise you will get a lot of unemployed people and bankruptcies. ”
All aid measures involve a lot of money. The Dutch cabinet came up with a support package of between 10 and 20 billion euros. Brussels came with EUR 37 billion in aid and relaxed the budgetary rules. The European Commission is also not difficult about state aid during this time of crisis. A package of measures of $ 2 trillion was agreed in the United States. "Governments must ensure that everyone can continue to eat," says Blom. "They need to ensure that both companies and individuals have money to pay the bills, cover losses and continue to pay fixed costs."
Governments borrow all those billions on the financial markets. Such a high demand for money normally leads to higher interest rates. "You've seen this happen before Italy," says Blom. High interest rates make borrowing expensive for governments. Central banks have come to the rescue to prevent this. They ensure that interest rates remain low and that sufficient money continues to flow through the market. And they do that with gigantic amounts. The European Central Bank (ECB) is going to buy € 870 billion in debt and says it is ready to do everything it can to deal with the corona crisis. The US Fed initially announced that it would purchase $ 900 billion in debt securities and mortgage packages, but has since said that there is no longer a limit on buying debt.

With their interventions, the central banks help not only governments that issue debt, but also large companies and banks. “Of course, companies are now draining their entire credit line,” says stock market analyst Corné van Zeijl of asset manager Actiam. “That is why banks are under particular pressure on the stock exchange. With their interventions, governments and central banks want to prevent commercial banks from falling over. ”
The V-curve: strong recovery after a big bite
Whether it will be possible to keep the economy before the coronavirus intact as much as possible is hardly predictable, but economists cannot resist sketching all kinds of scenarios. Of course, everyone prefers to see a so-called V-curve, in which the economy gets a lot of bite, but after the virus has dampened it bounces back to about the old level; literally the shape of the letter V.
Van Zeijl no longer sees the V-curve as a realistic scenario. “I now assume that this will take longer. People who have become unemployed have to find a job again. And after such a blow, everyone will again see how useful it is to have reserves: both companies and individuals will then hoard money instead of spending. ”
Aben van Van Lanschot also thinks that a quick spring will no longer work. "Then you should already see a revival in the third quarter of 2020, which we do not think likely." Another possible scenario is the so-called W-curve, says Aben. “You will see hope and revival for a while, but then it will ebb away again, only to really start to recover again in the second quarter of 2021.”
The L-curve: flat on the ground
In the worst case, it goes so wrong that there is an L-curve. Aben: “That means a sharp downturn, after which the economy remains flat on the ground. Of course we hope not, but you have to take it into account. ”
For the time being, Van Lanschot is based on the U scenario. “In addition, compared to the V scenario, it will take longer for the upturn to come: only in the fourth quarter of 2020 or the first of 2021. We think that the financial markets will rebound soon when finally the end of the tunnel comes light. , in the form of a drug, a vaccine or better control of the virus. "
The Central Planning Board also came up with a number of scenarios last week, depending on how long the corona measures will last. In the most positive case, the corona measures last only three months and although there will be a shrinkage of 1.2 percent in 2020, a recovery of 3.5 percent will follow in 2021. In the blackest scenario of the Dutch DPA, in which the measures remain in force for a year, the Netherlands will experience a shrinkage of 7.3 percent in 2020 and a shrinkage of 2.7 percent in 2021.

Afterwards, an explanation is sought for the black swan

The CPB already insisted last week that these are not hard figures. What is certain is that a recession is inevitable, that the aid package limits part of the economic damage and that the rising government debt remains bearable for the Netherlands; even in the darkest scenario. It is frightening that three of the four scenarios predict a deeper crisis than the financial crisis, with a contraction of 3.7 percent in 2009.
Whatever the scenario becomes reality, in hindsight the conclusion will be that Europe could have anticipated and prepared for the risk of a virus outbreak and its consequences. At least, that is the tendency that people have, according to Taleb: in an unexpected event with an unprecedented impact (a black swan), afterwards not only an explanation is made for the event, but it is also found that the event could indeed have been predicted. turn into. This also happened during the financial crisis: in hindsight, it was crystal clear that the complicated investment products that financial engineers had manufactured from clutter-free mortgage packages would freeze the financial system.
However, the fact that the financial crisis has been completely dismissed afterwards does not mean that the financial system cannot be hit again from another angle, as has been demonstrated once again. The cause does not lie in the economic system itself, as it did then.
Unlike in 2008, the interventions of both governments and central banks are also much faster. Blom: “Large rescue packages were launched in a few weeks, while this took months in 2008. But the option to react slowly is not there now. The speed, depth and breadth of this crisis is much greater. ”
Commercial banks, at the time the instigators of the crisis, also play a constructive role. "They are more flexible," says Corné Van Zeijl. "Italian banks don't even let people temporarily pay their mortgage." Banks also lend a helping hand in the Netherlands, which is possible because they have been obliged to build up large buffers since the financial crisis. They allow companies not to repay their loans for six months.

China had a lockdown of unprecedented proportions

A look at China, where the outbreak started in December 2019, could be interesting to see what economic path Europe is going to take, Aben says. “There is now slowly getting things started again. The problem is that the US and Europe are now locked, which also affects the Chinese economy. In addition, activities cannot immediately return to full power. And when people return to work: does the virus remain under control? ” Van Zeijl thinks that the revival in China will come. "But China had a lockdown of unprecedented proportions. You do have a chance of a second wave of the virus. But the fear is good, so I think that action will be taken soon. ”
Meanwhile, the epicenter of the virus has moved to the US. Last week, it was revealed that as many as 3.3 million Americans had registered as unemployed, a record. Van Zeijl thinks that the US is economically more difficult to overcome the corona crisis than Europe. "Although the rescue package is 9 percent of the US economy, the social safety net in the US is flawed." Where aid packages come in addition to social safety nets in Europe, this is much less the case in the US. And then it is also true that Americans generally have little money to spare, says Van Zeijl. "Half simply don't earn enough to save $ 500."
In Europe, the question is whether the sentiments that played out during the euro crisis will play a role. "Here and there you see a lot of focus on your own country," says Van Zeijl. “The euro could just become a problem again. Italy may now be in debt and interest rates are kept low, but it remains to be seen whether Brussels will support Italy. I think the EU is either getting closer with this problem or the contradictions are getting sharper again. ” Rabobank's Middeldorp is less concerned about this. “The big difference with the euro crisis is that Northwestern Europe was afraid that Italy and Greece were dealing irresponsibly with money. Now there is no such dichotomy: we cannot blame Italy for having happened to them now. ”
So besides a recession, economists remain in the dark. In a year or two it will probably be crystal clear how economies worldwide could have tackled the virus outbreak even better in order to save both public health and the economy as much as possible. But that science does not help the next black swan.