The health safety measures which had to be taken to bring the COVID-19 pandemic under control have caused a sudden decline in large parts of economic activity and reduced demand. The recession has been ‘mechanical’. With the progressive easing of the lockdown measures, we can expect a mechanical rebound of activity and demand. The key question is what happens afterwards?

There are several reasons to expect a slow, very gradual recovery. Hysteresis effects play a key role: part of those having lost their job may struggle to find a new one, certain companies will have gone out of business, others will prefer to strengthen their balance sheet before recruiting new staff and investing. In addition, lingering health risk fears may influence household spending.

The recovery will be different depending on the country or the sector. The severity of the lockdown, the weight of SMEs –which tend to be financially less resilient- are some of the factors which play a role. Finally, uncertainty will remain exceptionally high and this should be taken into account when using economic forecasts in the current environment.

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