Harr's view: Now the hard part - crisis to extend but not escalate

In my view, the fact that infections are rising, winter is coming when the virus has better conditions to spread, and the increasing strain on hospitals in some countries suggest that restrictions will broaden and remain in place in Europe for many months.
However, the fact that the mortality rate is lower, extensive testing is more widespread and there is a greater understanding of how to 'dance' with the virus without hurting the economy too much, suggest that the bar for broad lockdowns remains high.
The crisis would imply destructions of supply and jobs, particularly in industries such as travel, restaurants, hotels and leisure. However, jobs could be created elsewhere if demand is sustained, which necessitates loose fiscal and monetary policy for a long time.
If policymakers believe that the crisis will be over in a year's time, they need to keep vulnerable industries such as restaurants and bars afloat. Meanwhile, if we believe that the crisis is temporary, demand may be flowing to the 'wrong' areas, e.g. to property markets, creating imbalances, which policymakers would have to pay attention to.

Danske Research Team Danske Bank A/S

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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