Three irreversibilities to prevent a return to the pre-coronavirus economic situation – Natixis
|Before a vaccine against COVID-19 is available, it is still the health situation that drives the economy and financial markets. Once a vaccine becomes available, the analysis to be made is about irreversibilities, about what remains different despite the health situation returning to normal: changes in behaviour, acceleration of the energy transition and deterioration in the structure of corporate balance sheets, per Natixis.
More – Implementing national lockdowns to lead to a new bear market for stocks – Charles Schwab
Key quotes
“As long as there is neither a vaccine nor an effective treatment against COVID-19, the health situation will continue to play a leading role for the economy and financial markets. Given that the health situation is worsening again in the Americas, India and Europe, there is a risk of a further decline in activity at the end of 2020 and the beginning of 2021due to restrictive measures taken by governments, disruption in companies if there are many cases and a decline in household confidence. This decline in activity is already giving rise to a downturn in share prices.”
“Once a vaccine and an effective treatment against COVID-19 become available, is it possible to return to the same economic situation as before the crisis? The answer is no, since some aspects of the economy will be permanently different, since there will be irreversibilities.”
“We see three irreversibilities about what remains different despite the health situation returning to normal. Permanent changes in behaviour, for example, remote working, online consumption, a drop in business travel, leading to permanent weakness for office real estate, traditional retail and air transport. The COVID-19 crisis has triggered, without many scientific reasons, the desire to speed up the energy transition, and therefore an accelerated shift to electric cars, faster development of renewable energies and new technologies (hydrogen, carbon capture, etc.), and an effort to insulate buildings and housing. Corporate balance sheets are deteriorating in 2020, due to falling earnings and therefore a loss of equity and rising debt. Even a company that will return to normal revenues once a vaccine becomes available will suffer from the deterioration in its balance sheet structure, leading to a weakening of investment and employment.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.