What makes this crisis different from others? In my lifetime, any recession has been characterised by bad news and falling earnings and stock markets. Unemployment is rising fast. However, there is a point where the employment picture does not get worse, it stagnates, some consumers and companies are willing to take on more risk, and, with lose monetary conditions, a pick-up can be seen. Financial analysts call this often the bottom of the market. Note that a global economic recession, meaning a recession in advanced and developing economies has been extremely rare. During any experienced recession, there was a time when light could be seen at the end of the tunnel.
This time the amazing fact is that nobody seems to know where we are in the lifetime of this crisis. While stock markets are characterised by new all-time highs, the confusion is deep. We move ahead but we are not sure if we are at the beginning of the tunnel or at the end. When will all this be behind us?
As it morphs out to be a consistent and continuous permutation of a health crisis with a social, economic impact, we all wait for a vaccine which is promised sometimes in 2021. This crisis is not purely about economics, it is also about health and life. All this leads to many dimensions which we are not used to manage. Be it health, be it the uncertainty, fear affects our day-to-day behaviour these days.
Our behaviour affects the economy, and I would not be surprised if the scaring of this experience will take many more years to overcome. The consequences and the resulting behaviour will still be felt a long time in the future; just think about our grandparents who were still hiding money under their mattresses even 50 years after WWII. Extensive fear in the life of a human will have a continuous impact on her/his behaviour.
This happens at all levels. Workers who have been made redundant will not take out loans and will not launch their own operations/business. Businesses will be less interested in investing and hiring people. Normally this creates innovation and growth in economies. However, unwillingness to take on any risk will mitigate any impact.
Note that decision is based on people´s perceptions. All what the governments can do is try to reduce this perception of fear; there is a need to provide some stability and making life more forecastable. However, modern budgets and resources will have only a limited grace-period to provide this perception. Intuitively we need to spend more funds in the short term; this would improve the long-term effects on our economies and our democratic systems.
So what are my conclusions:
1-We do not deal with an ordinary recession, and behaviour of both investors and consumers cannot be rationalised. The impact of the permutations of health and economic shocks cannot be forecasted, despite that certain trends are visible. In other words, do not try to forecast the bottom of this crisis.
2-The government should try to focus on changing the perception of this crisis.
3-Most importantly, we will probably have until the end of 2021 so that any light at the end of the tunnel is visible. If this hope of an efficient vaccine will be trashed, we will see the making of a serious depression which will fragilize many socio-economic successes of the last 100 years.