The coronavirus pandemic has caused a global economic crisis in which world output is expected to contract more than during the great financial crisis of 2008. The duration and depth of the crisis will depend on how long the necessary containment measures imposed will remain in place and on the success of economic policy measures in preventing bankruptcies and unemployment.
The current economic crisis is global in nature. ‘Many emerging economies are facing difficulties not only because of the direct economic effects of the pandemic but also as a result of the decline in commodity prices and an outflow of capital. Over half the members of the International Monetary Fund have approached the Fund for emergency financing,’ stated Bank of Finland Governor Olli Rehn at the press briefing for publication of the new issue of the journal Euro & talous.
The onset of the coronavirus crisis was reflected in a higher volatility in prices and demand for liquidity. The ECB has introduced new measures to stabilise economic activity and the financial markets. These measures are targeted at maintaining provision of credit to the real economy and preventing long-term adverse effects on the economy.
The Eurosystem's pandemic-related and other asset purchases in 2020 will amount to over EUR 1,000 billion. In addition, banks are being provided with longer-term refinancing at very favourable terms and collateral requirements have been eased. ‘The Governing Council of the ECB will do everything necessary to ensure supportive financing conditions. We will continue to monitor the situation and stand ready to adjust all of our measures, as appropriate. We call for Member States to enhance pan-European cooperation and for governments to take measures to support the economy,’ concluded Governor Rehn. Better coordination of fiscal and monetary policies would ensure that the economy will recover as soon as possible.
Finland, too, is on the verge of a recession. In the acute phase, companies and households are being supported in a situation in which income flows have dried up. ‘Widespread corporate bankruptcies and a rapid growth in unemployment would be particularly harmful for the long-term outlook for the economy. Longer-term damage can be prevented by national and common European solutions,’ emphasised Governor Rehn.
‘During the crisis, it is necessary to increase the level of general government debt to resolve the healthcare situation and support the economy’, stated Adviser to the Board of the Bank of Finland Lauri Kajanoja at the press briefing. ‘Thereafter, there will be an even greater need to improve the long-term sustainability of general government finances.’ Reforms that improve the conditions for higher employment and slow growth in public expenditure will be more necessary than ever.
The risk of a permanently higher level of unemployment will increase if the containment measures remain in place for a prolonged period. Once the containment measures have been lifted, the key aim is the return of employment to a path of growth. ‘To ensure that the recovery in demand could, in time, boost output and employment, it is important that companies are able to retain their skilled labour force. This will enable them to develop and expand their activities,’ emphasised Kajanoja.
Once the crisis has passed, we will face familiar problems. It is important to support economic sustainability and productive capacity. Investments in the mitigation of climate change are still necessary, as well as policies that support education, research and development and the prevention of social exclusion.