In a detailed analysis of the government’s measures targeting the private sector in the context of the current coronavirus epidemic, Professor Branko Zivanovic, head of the chair of economics and finance at the Banking Academy in Belgrade, predicts the three possible outcomes of the crisis, its current impact on the Serbian economy and its possible consequences:
The highest expectations are that the COVID-19 emergency will end in the next 6-9 weeks. In such a scenario, the macroeconomic situation in Serbia will appear to be in marked decline at first. When this comes to a point of no return, expected between the 6th and 9th week, the trend will subside and the economy could recover rather quickly. This is called a curve scenario (as it resembles the letter V of the Latin alphabet). In other words, there will be a sudden decline and similar recovery of the overall economic activity, measured by a group of indicators among which the GDP plays a key role. In this case, we will quickly enter the recovery phase and the economic structure will not be significantly affected.
The second scenario is a U-curve scenario, in case this emergency lasts for more than 9 weeks. Here, the decline will be less acute but more prolonged. So after the 5th or 6th week, the economic decline will be significantly slower because the major economic damage has already occurred. But, by analogy, we will recover more slowly. This scenario is possible from the 9th week of crisis, with an expected duration until the end of the year. Raw material quantities will be at a minimum, a further budgetary intervention will be problematic, inflation will rise and the economic and cross-sector structure will be seriously affected. All this will cause a slower and more complex economic recovery.
The worst-case scenario must be, at least theoretically, mentioned, but it almost certainly will not happen. It is represented by the curve “L” and would imply a critical decline in economic activity. This is an unimaginable type of economy, perhaps better described in Camus’ “The Plague” than in true economic theory. The economy would be in a vegetative state of physical self-sufficiency, and the problem would become planetary. This scenario would occur if the epidemic, or the crisis caused by it, lasted more than a year. It is difficult to predict this scenario in detail, but it is almost certain that it will be avoided.
“I predict and hope that the first scenario will happen, but I don’t exclude the beginning of the second. I think that the crisis will end there,” Professor Zivanovic concludes.
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The measures are good and timely
Regarding the new government measures for the economy, Professor Zivanovic says that they are appropriate to the situation and good for many reasons: “They are not separated from the measures of other countries and the real market, and for the first time, the focus is on micro, small and medium-sized enterprises, which are the backbone of our economy. At the same time, these measures have a strong social component”.
According to him, the measures announced by the state have three objectives in mind: preserving jobs, production and liquidity.
(Biznis i Finansije, 02.04.2020)
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