FOR Communication 8/2020: Coronavirus and What Next? FOR’S Economic Prescription
- Diagnosis: The coronavirus epidemic in the country will have a negative impact on companies producing for the domestic market (e.g. commerce, gastronomy, hospitality), while restrictions in world trade and problems of our main trading partners will hit companies focused on external markets (e.g. transport, industrial manufacturing). The economic impact will depend on the duration of the epidemic. In the case of a quarter-long epidemic, given the negative impact of the global economy, this could mean a drop in growth to around zero.
- Good medicine: Government action should be primarily aimed at making it easier for companies to survive the epidemic and maintain employment. The scale of the intervention should depend on the duration of the epidemic - the emphasis should first be on deferring taxes and contributions, then on guarantees and loans, and only at the end on writing off part of the liabilities.
- Bad medicine: The nature of the economic shock caused by the coronavirus means that attempts to stimulate demand are doomed to failure in advance, and the response of economic policy must be much better tailored to individual industries. For a number of sectors, demand reduction is directly linked to the prevention of the epidemic. In such sectors, the key action should first be to ensure liquidity, allowing companies to preserve their jobs. In the case of changing global supply chains, the economic policy response will be more difficult - it is unclear whether they will return to their current form once the epidemic is over. Therefore in addition to temporary liquidity support, it will be important to create favorable conditions for the companies operating in them to adjust to the new reality.
- How to get stronger after the illness: Globally, in the coming quarters, a number of companies will restructure their supply chains, diversify them and perhaps relocate part of their production closer to domestic markets. If Poland is to benefit from the opportunities created by these changes, the following reforms will be needed:
- improvement of public finances, so that the high deficit and uncertainty related to it does not discourage citizens and foreign investors from investing in Poland;
- tax and contribution reform to reduce the abnormally high taxation of low wages (sixth highest in the OECD) and their time consuming nature (second highest in the EU);
- increase economic freedom, so that new business models are not blocked by the old regulations and the limitation of politicization of the largest companies in the country;
- reform of the judiciary to restore its independence while increasing its efficiency, so that disputes between entrepreneurs are resolved fairly and promptly by independent courts.
Full Communication to download can be found below.
Aleksander Łaszek, PhD, Chief Economist
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See also:Aleksander Łaszek