The recession is desired by governments to reduce the pandemic. It has never been done before and that is why the crisis is not ordinary
The current crisis has two unique components. The first is that every government wants its economy to go into recession and the second is that all governments do it at the same time.
This is original and that it has nothing to do with the crisis of 1929, 1987, 2001 or even 2008. Never had governments rationally pushed their economy into recession. If he had not done so, they could have been called irresponsible in the face of the health crisis which endangers the world.
Containment helps limit viral contagion, but it must be accompanied by compensation measures.
Each government wants to do everything in its power to reduce the possibility of contagion, and each authority, from governments to central banks, has the perception that the greater the means, the nearer the end of the contagion.
The recession will only be deeper
The shock is strong, persistent and of a new nature as the Markit surveys this morning have shown. The activity indices are very low, comparable to those of 2008 (lower than in 2008 for France and Germany) but new fact, it is the services which, whatever the country, penalize the most the momentum of the activity. The stabilizing nature of services is no longer verified in this crisis. It is no longer the volatility of the manufacturing sector that drives the economic cycle but that of the services. Here we have a measure of the impact of stopping air transport and tourism. Containment measures are not yet fully available as none of the countries released on March 24 had been contained for more than a week. The April figure could then be indicative of the stress caused by the lockdown.
The other remark is that this shock on activity occurs in Western economies whose capacity to rebound is limited. Productivity gains observed before this crisis were low everywhere and potential growth much lower than before the 2008 crisis. The capacity to rebound will therefore be limited during the recovery marking the end of the epidemic. Future growth will be lower than that observed recently since the shock has resulted in a drop in business investment and therefore a more rapid obsolescence of productive capital.
All economies are affected and disorganized under the combined effects of contagion and containment. Imagine that the global economy can reorganize quickly while its rebound capacity is reduced is a delusion. The possibility of a rapid and large adjustment is much lower than in the past.
The economy will frankly change with this crisis. The resulting slow growth will generate stronger demand for government and relocation of production in western countries. The global economy which had turned to more openness and globalization could now reorient itself towards more internal concerns and the reinvention of borders. Not good news.