EcoWeek

Drop in data confirms need for strong policy reaction

Eco week 20-12 // 27 March 2020  
economic-research.bnpparibas.com  
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EDITORIAL  
DROP IN DATA CONFIRMS NEED FOR STRONG POLICY REACTION  
The measures to stop the spreading of the pandemic have a profound impact on the economy which increasingly  
shows up in the economic data. Record declines in business sentiment illustrate the necessity of the forceful policy  
measures which have already been taken. The lifting of the lockdowns will, mechanistically, trigger a rebound in  
activity but additional stimulus will probably be needed to maintain the momentum.  
We are in an atypical recession. Robert Kaplan, President of the countries, measures to facilitate the use of part-time unemployment  
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Federal Reserve Bank of Dallas calls it a self-mandated recession . whilst limiting the impact for the people concerned, should avoid that  
The necessary measures to stop the spreading of the pandemic have a household spending declines even more.  
profound impact on the economy causing a recession which is expected  
to be deep and short.  
Once lockdowns are lifted in various countries, activity will,  
mechanistically, rebound as people will be able to spend and travel  
Recent economic data which have been gathered when lockdowns had again and companies to offer their goods and services. However, that  
been introduced start to show the extent of the hit. The flash purchasing does not mean that companies will rush to start investment plans  
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managers’ indices for March showed big declines, in particular in which previously had been put on hold or even canceled altogether.  
services and as far as export orders are concerned. In Germany, the Likewise, the sudden increase in unemployment will take time to go  
ifo business climate had the biggest monthly decline on record and into reverse. As a consequence, a second wave of fiscal policy support  
the same holds for its French equivalent produced by INSEE. In the US, will probably be needed to keep the momentum going.  
initial jobless claims jumped to 3.3 million -the highest on record- and  
William De Vijlder  
is expected to increase further in the near term. This number didn’t  
stop Wall Street from rallying strongly, which may reflect optimism  
about the impact of the USD 2 trillion stimulus package -about 10% of  
GDP- which had been voted in the Senate but it might also show that  
investors are ‘looking through’ very poor data, considering that a self-  
mandated recession will end swiftly once the lockdown is lifted.  
US INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE  
MONTHLY DATA)  
(
This shifts the debate on the economic costs of the lockdown. These  
costs depend on how long it will be maintained and under which  
conditions. INSEE communicated this week that the loss of activity  
Unemployment insurance, initial claims (thousands)  
3500  
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due to one month of confinement, could lower annual GDP by 3% . A  
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283  
3
2
000  
500  
confinement of two months would have an impact on annual GDP of  
on 20-03-2020  
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%. The ifo Institute calculated that in case of a partial standstill for two  
months “the costs will range from EUR 255 to 495 billion, depending on  
the scenario. That means output for the year will shrink by 7.2 to 11.2  
percentage points .  
2000  
500  
1000  
4
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These estimates illustrate how crucial it is to comply with the  
measures to stop the spreading of the virus: strict compliance  
increases the likelihood that lockdowns would be lifted sooner rather  
than later thereby limiting the human cost but also the economic  
impact. In many European countries as well as in the US, measures  
have been taken to attenuate the impact on companies, in particular  
SMEs, so as to avoid that a liquidity problem would end up becoming a  
solvency problem, thereby inflicting lasting damage to the economy. In  
addition, income support to households or, as seen in several European  
bars mark recession periods  
5
00  
0
5
0
55 60 65 70 75 80 85 90 95 00 05 10 15 20  
SOURCE: US DEPARTMENT OF LABOR, NBER, BNP PARIBAS  
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. Interview on Bloomberg Television, 27 March 2020.  
. The data are for the US, the eurozone, France, Germany, the UK and Japan.  
. https://www.insee.fr/fr/information/4471804.  
. ifo Institute: Corona Will Cost Germany Hundreds of Billions of Euros, press release, 23  
March 2020.  
The lifting of the lockdowns will, mechanistically, trigger a  
rebound in activity but additional stimulus will probably be  
needed to maintain the momentum.  
The bank  
for a changing  
world  
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