Activity at a standstill in many sectors, fall in the stock markets, etc. The economic consequences of the Coronavirus have been unprecedented since the great recession of 2009. For some experts, the shock, and its mechanisms, are comparable. At the head of Rexecode, an institute close to companies that scrutinizes their financial health and their competitiveness, the economist Denis Ferrand considers that the current crisis is much less serious than that of 2008. Explanations.
Challenges – Many economists draw a parallel between the 2009 recession and the Coronavirus crisis. Are you one of them?
Denis Ferrand – No. There is no similarity. In 2008-2009, the crisis had occurred because there was no more oil in the cogs, more funding for economic activities. Today, with Coronavirus, production is impacted in particular by supply difficulties and the reduction of outlets to China. It is an exogenous shock, which will cause a loss of activity in France. But it does not stem from a system malfunction, as in 2008, with the shortage of funding that had caused the recession.
Does panic on the stock markets not risk drying up corporate financing?
Financial tensions will for the moment be limited. Our businesses are much stronger financially. They learned the lessons of the financial crisis by increasing their cash mattress, which today represents 18% of their debt against 12% before the crisis. And the central banks, which have also learned from the crisis, will react. The very rapid reaction of the Fed, which lowered key interest rates, shows the attention paid to the risks of difficulty in financing companies.
In many affected sectors (transport, tourism, entertainment), companies will cut their spending. Can this mechanism trigger a recession?
In the affected sectors, for example air transport, part of the lost activity will never be recovered. But a part will also be postponed, for example certain trips which will simply be postponed. Same mechanisms for investments: if the company postpones its spending because of the Coronavirus crisis, this is not very serious. On the other hand, if it removes them, as was often the case in 2009, then this can trigger a recessive mechanism. Today, I think that most of the investments are only deferred, the companies are waiting for a resumption of activity.
Less efficient in export than Germany, is France more protected from the shock in China?
Yes. France is, in fact, three times less dependent on China, as an outlet, than Germany. On the other hand, our dependency rate on China as a supplier country for industry and consumers is close to that of Germany. For France, it should also be noted that certain sectors depend on Italy, which has been very affected by this health crisis. For example, in textiles, 17% of intermediate goods used in manufacturing come from Italy, especially from the North region, which is the most affected.
Faced with this shock, what are the relevant economic policy measures?
Above all, no fiscal stimulus is needed. Stimulating a demand that cannot be met, in particular because of supply problems, would create an inflationary shock. Priority should be given to avoiding business bankruptcies in the most affected sectors (transport, tourism, shows), in particular by offering great flexibility in the payment of social security contributions. The cash flow of these companies must also be relieved. And avoid any rise in unemployment by facilitating the use of partial unemployment. In Germany, the massive use of this generous system of Kurzarbeit, in 2009, supported by the state employees and companies, had helped avoid layoffs. And by the end of the crisis, Germany had quickly recovered. Allowing companies to keep their employees will facilitate their rebound, once the Coronavirus crisis is over.