Disclaimer text

Decline
Accept
Guest
https://www.aegonam.com/en/search/
>
Menu

How to not waste a crisis

How to not waste a crisis
Back
ARTICLE TYPE
Market Updates
TOPIC
Macro,Opinion
PUBLISHED
September 20,2021
READ TIME
6 mins
AUTHOR
Serdar Kucukakin
SHARE
Back
ARTICLE TYPE Market Updates
TOPIC Macro,Opinion
PUBLISHED September 20,2021
READ TIME 6 mins read
AUTHOR Serdar Kucukakin
SHARE

It is that time of the year again: economists are publishing their views and forecasts for next year. I have already seen the first ones in my inbox. I always enjoy reading these reports, especially those that do not fit my own views, because they force me to question them.

 

I don’t have an outspoken view on 2022, but I'll share my considerations with you. Let me start by doing what I also think I should do as we almost enter the final quarter: accounting for the views to date. I have shared my views four times with my readers. In my first column in February “Economic developments and the letters of the alphabet” I argued that for me the term ‘economic recovery’ has a different connotation from the one commonly used. To me, it means the start of a healing process, which  I believed only was possible after the introduction of a Covid-19 vaccine. I think that we currently are in the middle of that process in the western world. On average, financial markets were even looking for rather plain sailing after vaccines were introduced. So far this did not happen and the Delta variant is causing new headaches.

 

Reality is evolving and so are economists’ forecasts, but to me here there is clearly more to it. In my column in May ‘Three scientists’ I argued that economists are famous for their assumptions and that these assumptions often are more insightful than the forecasts. I pointed out that even though the various mutations of the virus lead virologists to debate when exactly herd immunity could be achieved, most economists, myself included, circumvented this debate largely by using their famous assumptions.

 

Despite the absence of plain sailing, economies are clearly recovering thanks to the ongoing vaccination efforts. Supply chain bottlenecks, consumer demand being unleashed and commodities occasionally causing issues, are all contributing to higher prices. In July, I exercised some humility in my column ‘An opinion about inflation’ and only presented the different paths for inflation down the road without trying to convince either side: inflation is transitory vs. inflation is not transitory. As of today, I am still not fully convinced about either. The one thing I have growing confidence in since July is that this ‘special situation’ like I called the current economic setting in my column could possibly last longer than I had initially anticipated.

 

The fourth column was in April and was titled ‘Riding a bicycle and economic developments’. I compared the economic developments in Italy to riding a bicycle. Main lesson learned in both cases: if you stop, you fall.

 

‘Voortschrijdend inzicht’, Dutch for ‘It’s easy to be wise after the fact’

So, this was looking back and accounting for my considerations. Looking ahead, to me the story behind the point estimates is way more important and insightful than the point estimates themselves. I am not saying that these estimates are not important or not relevant! They give guidance to both politicians and investors, among others. Having said this, we also should acknowledge their one obvious characteristic: they evolve. I like the Dutch expression: voortschrijdende inzichten,  ‘progressive insights’ according to Google Translate.

 

For me the most pressing question behind point estimates for next year and beyond is how countries will emerge from the current crisis. Will their growth potential have taken a hit as many believe because of ballooning debt levels, or will they manage to find a way out of the negative effects of the crisis? Sir Winston Churchill once said “Never let a good crisis go to waste” as refence to the conditions post WWII that allowed for the establishment of the United Nations. This quote is all about looking for a silver lining during a crisis and seeking opportunities where they might not have been before. So, in the current almost-post-pandemic-setting all it takes is to look for that silver lining and not lose faith!

 

For example, in the eurozone the unemployment rate last year only increased from 7.3% to 8.5%, while the unemployment rate in the US skyrocketed from 3.8% to 13.1% very quickly. After this initial peak, the unemployment rate started gradually easing in the eurozone, while it dropped sharply in the US. This difference is of course related to how policymakers responded to the pandemic. In Europe, they used different schemes to keep employees on company payrolls. In the Netherlands for example, the government provided €17.680.753.046 in support payments to 354.907 companies, with an average of €112.692, through the NOW-scheme, which stands for Emergency Measure Bridging Employment. In the US, people were let go en masse, but were provided financial support through the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Furthermore, the  US $2.2 trillion stimulus package is broader than just unemployment benefits. It also has a Europe-like scheme, the Paycheck Protection Program (PPP).

 

From the perspective of employees, I would argue that the European option is preferable because it leads to far less uncertainty. From a company perspective, however, the US option could well be more desirable, as it makes companies more able to restructure and be ready for the future. I am simplifying the issue here, but I hope that you agree with me that statements that stick usually are the outcome of a simplification. I bet that not all of you knew where the expression ‘Never waste a good crisis’ came from.

 

Looking ahead, the different reactions to the pandemic in the US and the eurozone could influence the economic developments beyond the immediate forecasts for next year. The already present significant differences in the economic settings of both blocs will in my view only act as a catalyst to these possible diverging developments.

More about the authors

Serdar Kucukakin Senior Sovereign Research Analyst

Serdar Kucukakin is a senior sovereign research analyst and is responsible for sovereign analyses of Central European countries and the Middle East.

View Profile


Read next