The corona recession will come – but how deep will it be?

The development of cases of infection with the corona virus in the affected countries outside China is currently very similar to that seen in China itself a few weeks ago. We must therefore expect a sharp increase in the number of new cases over the next few days. The current policy of the Federal Government is aimed at gaining time by slowing down the rapid increase in new infections as much as possible. In this way, the aim is to ensure the stability of the healthcare system. In view of current developments, this is certainly the right strategy.

The economic consequences of the corona crisis are still difficult to assess. However, it is relatively certain that most industrialised countries will fall into a more or less deep recession in the first half of 2020. For Italy, a deep economic and structural crisis must certainly be expected. Against this background, the fiscal aid packages recently adopted by the European Union and the individual countries are undoubtedly the right ones. Even though the fiscal measures will probably have to be readjusted in the course of the next period.

On the other hand, the hectic actions of the central banks should, in my view, be seen more as actionism. However, they are expected by market participants and in some cases vehemently demanded. There is therefore a danger that the downward spiral on the financial markets could intensify if the central banks do not give in to this pressure of expectation.

 

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