The spread of the Coronavirus pandemic and the ways to deal with it (lockdown, social exclusion & isolation) are causing tectonic changes in the size of GDP shrinkage and in total economic activity.
In recent years, the exogenous factors that determine the levels of demand for services and products in many sectors of the economy have been largely stable, with a declining trend in their cost. Examples of exogenous factors that determine domestic demand are transport, accommodation, distribution of products and services, etc.
By Trust Economics https://trusteconomics.eu
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An important point that will be highlighted by the economic crisis caused by the Coronavirus pandemic is the alteration and to change the stability of exogenous factors that determine the levels of demand for specific sectors of the economy.
How long will the instability of the exogenous factors last? We could say that this period coincides with the time of finding the specific vaccine and given that part of the population of the countries and until the vaccine is found it will be occupied by fear of the pandemic that will make them as consumers avoid crowding in certain closed or open spaces with other people.
What is changing are the contributing factors that determine the level of demand for services for many sectors of the economy.
At the same time, these changes in the stability of external factors of demand in combination with the new social conditions for dealing with the pandemic are certain to affect the cost of business products and services. A cost that will increase in most cases.
As the time interval between today and the date of finding the coveted vaccine decreases, as much will be decreased the impact of the specific and above-described new data on the microeconomic reality of many sectors of the economy and businesses.
Most companies, due to the new data, will necessarily reduce the number of services offered because of the avoidance of overcrowding by the physical presence of consumers indoors or outdoors, thus affecting the degree of profitability of businesses.
The challenge for most companies is to cover this cost (of reduced productivity and reduced number of services, respectively) by incorporating it into the price of their reduced degree of service.
The critical factor in this case is the unknown degree of elasticity of their services, i.e. the reaction of consumers to a possible increase in the prices of their services.
Essentially, it is the degree of resilience of business services that will determine to what extent consumers will continue to choose to acquire these services.
So, according to what has been said above, we are observing two main reasons for the possible decline in demand in many sectors of the economy:
1. Increasing the price of services and products.
2. The avoidance of purchasing the services & products of specific sectors of the economy due to the fear of consumers for their health, avoiding being crowded in closed or open spaces.
So, the risk for many sectors of the economy (transport, tourism, catering, entertainment, etc.) is high and there is a high probability of changes.
It is interesting to see to what extent the blows to demand for specific sectors of the economy would affect the macroeconomic prospects of the countries as well as the corresponding factors that will shape the future GDP of the countries.
In other words, if these blows to demand in certain sectors of the economy shrank so much, they would in turn increase corporate bankruptcies and increase unemployment, in turn reducing the disposable income up to what point of reducing private consumption.
At the same time, many business plans have already entered the cabinets of the offices indefinitely and until it is announced that the vaccine has been found and of course due to the drastic negative change in demand in the future.
This is entered the state factor that, with its intervention, is trying to support the affected sectors of the economy through extraordinary liquidity grants to both the affected companies and their employees. But this policy cannot continue forever.
The way each country produces added value through its GDP must adapt to the difficult new data set by the treatment of the pandemic. This is a real challenge!!!!!