About the Economic impact of COVID19

Aurélio Floriano, Economist

Now, the impact of the corona virus on the global economy. It will be devastating! For the modern capitalist economy to stop consuming is more deadly than the virus itself. An increasing number of developed economies produce almost exclusively services, while outsourcing industrial production and importing almost all primary products. The accounting for its enviable GDP’s is supported by intangible (ie, immaterial) goods, in addition to, of course, an endless list of superfluous consumer goods. For example, in 2018, agriculture, forestry and fisheries accounted for less than 1% of North American GDP.

What does this mean more concretely for developed countries? We can simplify by saying that the agriculture that still exists, generally does not produce enough food to guarantee (even) some food autonomy / sovereignty; the industry has little vocation to produce intermediate goods or essential products; the tertiary sector, highly dependent on a floating or foreign clients, which will soon be suffocated by the lack of customers.

In terms of unemployment the impact will be very significant in the private sector, if the majority of the population works in the tertiary sector (including myself), the reduction of consumption in such a marked and long way will lead to the bankruptcy of many businesses. Worst scenario, because when you have a canning factory, as soon as the economy's lockdown ends, manufacturing can be resumed almost immediately, even if production is still lower than the previous one, because the need for food is endless; but when a local accommodation or restaurant is closed in a tourist area of Lisbon, the recovery of that business and its lost jobs will be much slower, because tourism will take much longer to reinvigorate itself.

There is no doubt that the effect will be devastating, but this is more the fault of the economy than the virus. And is this the end of "an era" or the end of capitalism? It is such a pertinent question how will the Corona virus put an end to greed, selfishness or rivalries?

I think not, not least because the destruction of the old is almost inevitably necessary for the construction of the new - whether that destruction is caused by a war or by a social revolt; the proof of the failure of a system, as it has been subjected to extreme external pressure, as this virus is, is not a sufficient condition for its destruction, on the contrary. Unlike other episodes in history, in which misfortune brought people together, social isolation can contribute to individual alienation or to individualism exacerbation.

Although I think that everything will be as it was before, eventually, it would be very important that, for a future less exposed to these external shocks, the economy moves more towards the local instead of the global; food sovereignty and industrial production of essential goods are privileged; reduce wasted time and scarce resources.