The risks that condition the economic recovery

Faced with a crisis of such outstanding dimensions, it is very worrying that the economic recovery presents so many risks on the horizon. The losses begin to consolidate and the virus is still present – and with the hope of continuing in the coming months – in our daily lives.

After a crisis that is unprecedented in recent history, governments are beginning to prepare for the economic recovery that, in theory, this year should leave us. And it is that, in the face of a fall as marked as the one experienced by the world economy last year, collected in the perspectives shown by the WEO report, 2021 is shown as the year in which, due to the arrival of vaccines, the possibility of resuming economic activity and the opening of those sectors that could not operate, the economy could grow at a very accelerated rate as long as we recover that normality prior to the virus.

However, as the International Monetary Fund (IMF) itself has stated in the aforementioned report, that economic recovery that economies expect to experience, as in past months, as well as in other crises, is plagued with conditioning factors, as well as many uncertainties. , which could jeopardize that recovery. A series of conditions that, as the organism warns, will make this recovery not occur in the same way in all the affected territories. In this sense, said economic recovery is expected to undergo variations depending on the behavior of these economies, as well as the conditions that affect their potential growth.

Among these conditions, we can highlight access to vaccines and medical interventions, the support of governments and their support for the policies proposed by the main governments worldwide, as well as the structural weaknesses that, at the beginning of the pandemic, presented the economies and that, with the passage of time, have suffered a severe expansion. Weaknesses among which we could highlight the debt, unemployment, as well as other elements that compromise the future of the different economies at a global level. Well, they are precisely variables that have behaved quite badly in the face of the impossibility offered by COVID19.

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The losses begin to consolidate

“What worries economists the most is that neither is vaccinated everywhere at a similar rate, nor are vaccination rates in general being met, which makes it difficult, and delays even more, the reopening.”

As we know, the beginning of the pandemic was followed by the closure of economic activity in a large part of the world. Thus, we are talking about a standstill that, as the report cited in the article shows, has caused quarterly contractions of up to 16% of gross domestic product (GDP) in economies such as Spain, or 19.8% in the United Kingdom. And, in a scenario in which the measures applied focused on home confinement to control the virus, as well as infections, allowing economic activity was precisely the most unfavorable policy. So much so that, even, that false dichotomy between health and economy was established that so worried the experts.

This incapacity situation, known by economists as a supply shock, forced many countries to take measures to prevent this massive closure from causing the closure of numerous companies, as well as the loss of all employment that, as a consequence of this closure, expected to be destroyed. These measures included direct aid to companies, the suspension of employment (ERTE, in Spain), as well as other tools that, in a certain way, allowed entrepreneurs to adapt to the new environment, minimizing and sharing losses with support. of governments. However, the presence of the virus throughout the year, estimated by the IMF until the first half of 2020, has caused that less coupling between the fall in GDP and the destruction of employment, with the passage of time and in the face of the new stage, is no longer as prominent as in its early days.

Thus, observing the behavior of the economy during the first stages of the year, what worries economists most is that, neither is vaccinated in all places at a similar rate, nor are vaccination rates being met, which makes it difficult to and delays, even more, the reopening. This situation, in a scenario in which, as we said, companies are very weakened and losses continue to accumulate, is causing many of these companies to be forced to close, with the consequent loss of employment that this entails. ; because the aid offered today is increasingly insufficient. In figures, we speak of more than 436 million companies at risk, with more than 25 million jobs in the air.

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In short, a situation that has even made many economic experts on the planet speak out. Experts who, like those at BBVA Research, have begun to affirm that the best economic policy that we could apply at the moment, as if it were a joke, is to accelerate the pace of vaccines; Well, as the friends of The Economist well defined, as long as the virus is present, we must know that our economy will not work 100%, so the risk of bankruptcy, and that these losses continue to consolidate, is still very much alive.

The service sector: the most present and the most damaged

“It is enough to look at the different levels shown by the PMI indicators, disaggregated between industry and services, to realize the true collapse that this sector has experienced due to the pandemic.”

The outsourcing of economies has made the main economies in the world, since the Industrial Revolution, begin to show a greater weight of the services sector, in relation to the weight of industry. This has meant that, in economies such as the United States, its weight represents close to 80% of the gross domestic product (GDP). As we can see, a very remarkable weight and that subordinates a large part of the world’s largest economy to this sector; a sector that, precisely and incidentally, has been the most affected by this pandemic.

And it is that, what the United States shows is repeated in a great majority of developed economies. In Spain, for example, this sector represents, in the same way, about 70% of GDP. A figure very similar to that shown by Germany (68%), as well as other economies such as Italy (67%). But the great contribution of the services sector does not stop there, because due to its weight, we are talking precisely about a sector that employs a large majority of people in this type of economy. This is the case of Italy itself, where 71% of the workforce is concentrated in this sector, or of the other economies mentioned, where the United States stands out with a concentration of almost 80% of said workforce.

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Thus, this dependence on the service sector has been one of the main problems presented by this crisis. Well, just look at the different levels shown by the PMI indicators, which are disaggregated into industry and services, to realize the true collapse that, due to the pandemic, this sector has experienced.

In short, it is very worrying that, after a crisis like the current one, we continue to present so many risks, as well as uncertainties, on the horizon. Losses have begun to consolidate, as we continue to delay the reopening and have not fully controlled the virus. In addition, the fact that the most affected sector is the sector most present in the economies that must lead this economic recovery worries about losses that are beginning to consolidate, widening the imbalances and distancing these countries from the economic recovery that they must lead, and that so much needs the economy after such a catastrophe.

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