To news & knowledge overview

Kempen's Commentary: The recovery of the economy

10 July 2020


The recovery of the economy

Last week, Trump declared the coronavirus defeated. In turn, the Chinese labelled the stock market rally as a ‘healthy bull market’. And look, when I write this column, investors are swallowing it all. Share prices rise again quickly, the letter ‘V’ rules: Victory over the Virus, a V-shaped economic recovery and regularly flickering hopes for a Vaccine.

The latest economic data are undeniably good. Often above expectations even. In May, for example, retail sales in the eurozone were barely 5 percent below those of last year. There is a good chance that in June the damage will be undone, despite differences between nations that have been more or less affected by the corona crisis. But overall, the recovery does indeed appear to be V-like.

However, let’s not jump to conclusions as recovery certainly isn’t a reality yet. The American, Brazilian or Indian virus curves are both logical and known illustrations of this. Or look at some figures from the IMF. In January, this institution expected that GDP per capita would increase in 160 countries in 2020. That has been adjusted to a decrease in 170 countries. As long as this has not recovered, the ‘V’ isn’t complete yet.

Now, the size of an economy is one thing, quality is another. Perhaps the coronavirus can ultimately yield something positive in that qualitative domain.

First at the micro level. From March we all took a speed course in digital working. Successfully. Which perhaps makes it less logical or necessary to be in a traffic jam every day. Many people have experienced this as something very positive in their personal lives. If we continue on this road, the environment will experience the same.

But also at a macro level we can make quality improvements. In the eurozone, for example. Next week, state and government leaders meet in the European Council. If an agreement on a Recovery Fund is worthy of the name, its importance will go beyond a bag of money to boost the economy. Collecting that money together and working partly with donations is a step towards joint budgetary policy, which will be a qualitative step in European integration and decisiveness.

This doesn’t mean that government involvement in the economy is good by definition. There are solid reasons why, since the 1980s, under the impulse of Reagan and Thatcher, governments have mainly pulled back. But in this crisis, they intervene massively in supporting families and businesses. Their role will also increase in the future economies.

And if that’s the case, Europe might as well do it together. To claim its place among those other blocks. Especially when those politicians are among the less reliable. And when digitisation and sustainability of the economy, boundless growth domains, are indeed priorities.

So, let’s wait and see what the outcome will be. Next week or in the coming months. We’re looking forward to it. 

The author

Luc Aben

Subscribe to our letter

Leave your email address and be the first to receive the latest editions

News & Knowledge