Thorsten Beck's picture
Affiliation: 
Cass Business School
Credentials: 
Professor of Banking and Finance

Voting history

Post Covid-19 Potential Output in the Eurozone

Question 2: How much lower will the potential growth rate of GDP in the Eurozone in 2025 be due to Covid-19 relative to pre-Covid forecasts?

 

Answer:
No different
Confidence level:
Not confident
Comment:
As before, I am not confident as it is hard to predict policy actions over the next few years. My estimate is a best-case scenario where policies are adopted to minimise damage and resolve the crisis (corporate insolvencies, bank fragility) heads-on. Under such a scenario there should be no reduction in potential growth rate.

Question 1: How much lower will the potential level of GDP in the Eurozone in 2025 be due to Covid-19 relative to pre-Covid forecasts?

 

Answer:
2% or less
Confidence level:
Not confident
Comment:
The impact of COVID-19 on potential GDP will depend a lot on policy responses. So far, these policy responses have been appropriate, trying to minimise negative effects. But political doubts remain whether they can be continued long enough to avoid damage.

Lockdowns and UK Economic Performance

Question 2: How much will the new lockdown measures introduced on Thursday November 5 hurt UK economic activity this year relative to a counterfactual with the milder measures adopted over the summer?

Answer:
Small damage
Confidence level:
Confident
Comment:
I am comparing the economic development in the fourth quarter (dominated by lockdown) to the third quarter (between lockdowns): there will be an economic shock, mainly to the service sector. The negative impact of this lockdown, however, will be less than the impact from the first lockdown, as people have adjusted consumption habits and there will most likely be less precautionary savings.

Question 1: How much of the decline in GDP experienced to date would have been avoided in the absence of any lockdown measures or other policy interventions (such as fiscal support)?

Answer:
GDP would have been lower absent lockdowns
Confidence level:
Very confident
Comment:
The experience across countries suggests that there is not really a trade-off between public health measures and economic growth, so I would there would have been little if no difference in the GDP drop compared to the lockdowns. First, research suggests that people react with lower demand to the public health crisis and this reaction would have been stronger if the pandemic had exploded without any control. Second, an unlimited spread in the pandemic would have led to serious disruption in basic economic services (e.g., transportation) due to labour shortages, with wider negative repercussions for the economy. Not having any lockdowns and - additionally - not any economic policy measures would have exacerbated the economic outlook further. Widespread losses for corporations (with consequent insolvencies) and households would have resulted in further reductions in aggregate demand and in financial sector distress, adding another shock to the economy.

Will COVID-19 Cause Permanent Damage to the UK Economy?

Question 2: Which aspect of the economy poses the greatest risk for a slow recovery?

Answer:
Consumer demand
Confidence level:
Confident
Comment:
There will be many risks for recovery but in the short- to medium-term (next two years) I would say that depressed consumer demand and precautionary savings poses the highest risk. A close second will be debt overhang, corporate failures and possibly bank failures, which will require decisive policy action to allow for reallocation of resources within the economy, thus helping recovery.

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