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π Economics

Will there be a “post-covid” economy?

Patrick Artus
Head Economist at Natixis

We are all won­der­ing what the pan­dem­ic will change in the long term. Will the Covid-19 health cri­sis leave a long-last­ing trace in our eco­nom­ic sys­tem? Its a ques­tion we still can­not answer with cer­tain­ty because it is dif­fi­cult to assess what struc­tur­al rup­tures will remain after the cri­sis is over. How­ev­er, we can see at least six pos­si­ble dis­rup­tions in the fields of the labour mar­ket, indus­try, ener­gy tran­si­tion and dig­i­tal­i­sa­tion, as well as mon­e­tary and fis­cal poli­cies. At this stage, these are only trends and weak sig­nals, so only time will tell if they come to pass.

  1. Labour mar­ket: few­er appli­cants and high­er wages?

Since the late 1990s, OECD coun­tries have expe­ri­enced a dis­tor­tion of the income dis­tri­b­u­tion to the detri­ment of employ­ees. There has been a decline in employ­ee bar­gain­ing pow­er with com­pa­nies they work for (Fig­ure 2A). How­ev­er, since the begin­ning of the health cri­sis, there has been a decline in par­tic­i­pa­tion rate, i.e. the pro­por­tion of work­ing-age peo­ple enter­ing the labour mar­ket has fall­en (Fig­ure 2B). If this trend were to con­tin­ue or increase, the ris­ing ten­sion on the labour mar­ket would be favourable to employ­ees and wages would rise, thus gen­er­at­ing some inflation.

2. Will indus­tries recover?

For more than twen­ty years, the amount of pro­duc­tion by advanced economies has been on the decline. How­ev­er, since the begin­ning of the Covid cri­sis, we have seen a drop in the con­sump­tion of ser­vices due to health restric­tions (restau­rants, leisure activ­i­ties, etc) accom­pa­nied by a sharp rise in the con­sump­tion of goods. This is linked to the devel­op­ment of online com­merce and dif­fer­ent needs or desires that emerged dur­ing the lock­downs (gar­den­ing, dec­o­ra­tion, cre­ative leisure activ­i­ties, etc.). In the face of this, will indus­try recov­ery (graph 3B)? Yes, there is rea­son to believe so thanks to the new needs linked to work­ing from home (elec­tron­ics, fur­ni­ture), the need for equip­ment for renew­able ener­gies (wind tur­bines, elec­trol­y­sers for hydro­gen) and because of gov­ern­ment recov­ery plans and invest­ments in infra­struc­ture. Will this cre­ate jobs in OECD coun­tries? It could be the case, if some pro­duc­tion is relo­cat­ed for rea­sons of sov­er­eign­ty or to sim­pli­fy the sup­ply chain (med­i­cines, high-end tex­tiles) this would increase the need for skilled workers.

3. What will be the con­se­quences of accel­er­a­tion in the ener­gy transition?

The pan­dem­ic has con­tributed to accel­er­at­ing the ener­gy tran­si­tion, but it is not yet clear what the con­se­quences of a rapid tran­si­tion to net zero CO2 emis­sions in 2050 would be. Will the jobs destroyed (car indus­try, oil sec­tor) be replaced by oth­ers (ther­mal insu­la­tion, wind farms)? Will renew­able ener­gy equip­ment be man­u­fac­tured in OECD coun­tries or import­ed? For the moment, the share of the these prod­ucts man­u­fac­tured in France is very low. The sec­ond option – import – would lead to a decrease in added val­ue for these economies. And final­ly, what effect will the ener­gy tran­si­tion have on the price of ener­gy? The inter­mit­ten­cy of renew­able ener­gy pro­duc­tion will like­ly mean a sharp increase in price because of the need for elec­tric­i­ty storage.

4. Is dig­i­tal­i­sa­tion pos­i­tive for the economy?

Noth­ing is less cer­tain. Dig­i­tal­i­sa­tion of the econ­o­my has accel­er­at­ed since the begin­ning of the pan­dem­ic (e‑commerce, deliv­er­ies). How­ev­er, while dig­i­tal tech­nol­o­gy cre­ates high­ly skilled jobs in the design of ser­vices (com­put­er devel­op­ers, engi­neers), it also cre­ates a large num­ber of unskilled jobs (deliv­ery per­son­nel, pack­ers). This polar­i­sa­tion results in strong income inequal­i­ties. More­over, it is not at all cer­tain that the dig­i­tal econ­o­my increas­es pro­duc­tiv­i­ty. On the con­trary, it has been observed over the past 20 years that the increase in invest­ment in new tech­nolo­gies has coin­cid­ed with a slow­down in pro­duc­tiv­i­ty (Fig­ure 5B).

5. Can cen­tral banks change their policies?

The “what­ev­er the cost” approach to sav­ing com­pa­nies and jobs by the gov­ern­ment has required the inter­ven­tion of cen­tral bankers. In doing so, they have mon­e­tised state debt by great­ly increas­ing the vol­ume of mon­ey in cir­cu­la­tion i.e. print­ing ban­knotes. Con­trary to wide­spread belief, gov­ern­ments will not have to repay a large part of the debts they have con­tract­ed, as these are now record­ed as lia­bil­i­ties of the Euro­pean Cen­tral Bank (ECB) and the Fed­er­al Reserve, and it is dif­fi­cult to see why this option should change (Fig­ure 6B). On the oth­er hand, if mon­e­tary pol­i­cy has made it pos­si­ble to main­tain the sol­ven­cy of states, it has strong reper­cus­sions on asset prices. The avail­abil­i­ty of liq­uid­i­ty results in high­er asset prices (real estate and cor­po­rate val­ues) which increase wealth inequal­i­ty (Graph 6B). On the oth­er hand, it is not clear whether a rise in inter­est rates would lead to a pub­lic debt crisis.

6. Can states forego pub­lic deficits?

The health cri­sis has required huge mobil­i­sa­tion of liq­uid­i­ty and gov­ern­ments have real­ly pushed the usu­al lim­its of deficits and pub­lic debt (Graph 6E). Pub­lic opin­ion has become all the more accus­tomed to these increas­es because of the grow­ing num­ber of needs: ener­gy tran­si­tion, relo­ca­tion, health, research, young peo­ple, the fight against pover­ty. In France, for exam­ple, there are sev­er­al announce­ments per week that require an increase in pub­lic debt (invest­ments in Mar­seille, reim­burse­ment of psy­chol­o­gy con­sul­ta­tions, com­mit­ment income for young peo­ple). Will states be able to return to more sobri­ety? We don’t know, but we do know that if they don’t, the pres­sure on cen­tral banks to main­tain their accom­mo­dat­ing poli­cies will be considerable.



Patrick Artus

Head Economist at Natixis

A graduate of Ecole Polytechnique, Ecole Nationale de la Statistique et de l'Administration Economique and the Institut d'Etudes Politiques de Paris, Patrick Artus was Director of Research and Studies at NATIXIS until 2020, then Chief Economist and Member of the Executive Committee. He combines his teaching duties with his research work and is associated with various economic journals and associations. Today Patrick Artus is on Boards of Directors at Total and IPSOS as a Director and Economic Advisor to Natixis.

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