The negative response of the market to emergency type trimming made by the Federal Reserve (Fed) stresses that central banks They are not the key actors in the current crisis. The coronavirus "is a shock of offer" and the sanitary measures and specific fiscal policy "They are much more important than monetary ones" to contain and mitigate the economic impact of this crisis, according to analysts of Bank of America Securities (BoA Securities).
In his opinion, investors should not expect central banks to solve this crisis because the impact of the economic shock it will depend on health policies working to contain the expansion of Covid-19. "Deep down," they point out, "rate cuts may have been more negative than positive in the current scenario. "
Central banks have managed to solve the latest crises because their origin was financial, "but this time is different", they say from BofA. The coronavirus is, first and foremost, a offer shock, which causes a disruption in travel, labor supply and production. "It can also become a shock of demand if revenues and spending fall, but until the supply shock stops, the demand stimulus will not have much impact", they affirm.
Thus, the great risk is that companies and families affected have serious financial difficulties, which can multiply the negative impact, "but that is also best addressed with a specific tax action"they explain. The central bank can lower the price of credit and guarantee abundant liquidity, but that will not help a home or business that faces a cash flow problem.
Therefore, Bank of America Securities affirms that fiscal measures are needed by governments "better late than never"Donald Trump has met with his advisors to address measures that boost the activity, although in the case of the US, the country's capacity to cope with the sanitary emergency of the coronavirus is of concern.
The American system, which leaves out the most disadvantaged population, can having serious problems to cope with an outbreak similar to what has happened in Italy. And if the American economy suffers a fall in consumption in its own territory, the impact of the coronavirus can be much greater.
In Europe, several countries besides Italy, such as Spain, France and Germany, have already announced fiscal measures to try to mitigate the impact of the crisis, but here too success or failure to contain the virus will be essential by the different affected territories.
Monetary and fiscal policy makers are working on measures to relieve pressure on the economy. While the measures are unlikely to avoid a recession, "especially Specific measures for households and businesses with liquidity problems can help alleviate the immediate economic damage of this shock and prevent the situation from deteriorating rapidly, "argue Rabobank analysts.
"Now we expect the coronavirus to lead to Euro zone to a recession In Italy and Germany, the impact is probably greater than in other member states"these experts add. Their baseline scenario is a slight recession during the first semester, followed by a recovery in activity in the second half of the year.
In the case of Spain, Rabobank notes that it is relatively vulnerable to a offer shock Originated in China, but less to a shock of demand. Nevertheless, "An additional challenge for Spain is its substantial dependence on tourism revenues", they affirm.
Therefore, in addition to containing the coronavirus with effective sanitary measures, the options of the euro zone pass by making the Stability and Growth Pact due to a "adverse shock caused by external factors"The fiscal space is much more significant in Germany, Austria and the Netherlands what in Italy, Spain, France and Portugal, say these analysts. So containing the coronavirus and applying fiscal stimuli is the vaccine for this crisis. A simple summary for a task that seems very, very complicated right now.
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