COVID-19: shortages, inflation and growth, what will the world's economy look like?Growth, inflation and shortages: the three characteristics of the economy of the "world after"

Authorradu vranceanu, essecet Philippe-Pierre Dornier, Essec

Whether we like it or not, Keynesianism, according to which state intervention remains the best way to restore growth, dominates the analysis of crises and the conception of economic policies for 85 years.In this well-rooted paradigm, crises are explained by an unexpected contraction of demand, itself determined by multiple and varied reasons, as a monetary policy too rigorous in 1929-1936, or a contraction of the credit by a banking sectorHaving taken disproportionate risks in 2008.

Thus, faced with the COVVI-19 crisis, governments adopted strategies of the type "whatever it costs" during 2020 to stimulate demand as early as possible.They hastened in particular to reduce taxes on difficulties in difficulty and to increase public expenditure, especially in the form of transfers.

These transfers have taken the form of a massive appeal to partial unemployment in Europe, or higher allowances in the United States.With short -term interest rates already close to zero, the action of central banks, especially in the euro zone, has limited to absorbing new emissions of state bonds.

In this way long -term interest rates are also maintained at an insignificant, even negative level, in an illustration of the absurd of this situation.For example, if in France production collapsed by 8.2 % in 2020, purchasing power only dropped by 1 %, a sign of this generosity of the State.Public debt goes from 98 % of GDP in 2019 to 116 % of GDP in 2020 and is scheduled for 122 % for the end of 2022.

International economic organizations such as the International Monetary Fund (IMF)) or the Organization for Economic Cooperation and Development (OECD)) have defended this tax policy without any deduction, and moreover continue to do so.

Tender

What makes the COVVI-19 crisis singular is singular is the conjunction of a classic demand crisis, but which was very quickly stopped, with a strong supply shock which is propagated and intensified asand as the demand for goods is strengthened with the exit of the crisis.This situation should remind us of the oil price crisis in the 1970s, when countries refused austerity had to face rapid inflation.

Under the impact of the health crisis, the ability of the productive sector to provide goods and services has deteriorated due to 3 main reasons.

First, severe productivity loss in physical operations.The organization of operations had to know how to integrate the distancing, the barriers (reinforced ventilation, port of the mask, etc..)), intensive cleaning (disinfection)), implementation of marking and travel limiting any form of crossing or accompaniment of people.

In addition, the parents were faced with the custody of their children.In some cases, the only recourse was simply to stop working, because many positions are also not lending to telework.In return, digital solutions of online exchanges, videoconferences and telework have partially amortized the shock in the sectors and activities that allowed it.On the other hand, after a period of Beat enthusiasm, the limits of telework begin to come out.Finally, many resources had to be redeployed towards the fight against the pandemic (masks, pharmaceutical products)), depriving other sectors of these materials.

According to the report of the National Productivity Council of January 2021, the drop in production combined with a lower drop in employment is akin to a drop in productivity, extremely marked in the second quarter of 2020.The report takes up an analysis of INSEE, according to which “for 46 % of services in the services, 40 % of those in the industry and 56 % of those of the building, all questioned in October, the health protection measures reduce productivity, resulting in significant organizational difficulties ".

Secondly, dry losses of production capacity have been revealed and will only intensify.The confinements have indeed led to temporary factories, or the postponement of maintenance activities.Personnel availability in certain sectors has reduced production capacity.Seasonal immigrant workers, very present in agriculture or on construction sites, have disappeared from one day to the next, due to the restrictions on the international mobility of this workforce.

Today, it is necessary to protect yourself on the vision disorders pointed out by the National Productivity Council: “The crisis results in a paradoxical situation where, until now (at the end of 2020)), bankruptcies are decreased by 36 % forAll companies and 29 % for SMEs compared to 2019 ».Thus the pourned financial windfall made it possible to block bankruptcies but this aid will not be able to extend indefinitely.

Public money has maintained solvent, but sometimes insolvent activities, a truth of which will be reimbursed for the state guaranteed by the State.In 2021, numerous restructuring of firms should take place, which will lead to inevitable loss of resources, because the catch -up is inevitable and is estimated at a surplus of around 30 % of failures in 2021 compared to a regimenormal annual.

In the first quarter of this year, 80 % of companies that presented themselves in court were liquidated, an unprecedented rate for 20 years.This catch -up will therefore have an impact on the degradation of the functioning of the value chains which will see bottlenecks forming in the most exposed sectors.

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Finally, in the third place, the flows of globalization began their recomposition.Local blockages, emerging shortages in construction or semiconductors, problems associated with maritime transport and containers, an awareness of the benefits of the diversification of supply sources, political words in certain economies"Oriented" precipitated a slowdown which was already observed before the crisis.

China, which produced for the world and which kept surplus for its domestic market, has reversed logic for a few years.Between 2010 and 2016, its savings rate decreased by 50 % to 44 %.It now refocuses its economy on its domestic market and entrusts a lesser surplus to foreign markets.

Disruptions on the background of recovery

To date, conjuncturalists and international organizations are almost unanimously optimistic about the vigor of the revival in the second part of 2021.These forecasts take into account progress in terms of vaccination, but especially the enormous expenses granted by governments all over the world, without asking the question if the productive sector can follow and if so, at what speed.

However, we have recently started to observe the concrete consequences of the tender shock and grasp its magnitude.A word summarizes the very degraded situation of the economy: the shortage of raw materials and basic products.We observe an increase in prices on raw materials (oil and derivative products, soybeans)) or on intermediate products (electronic fleas, but also steel, construction wood, etc..)).

Building materials are rare and their prices are soaring;The deadlines for starting and carrying out projects are extended, and additional costs are looming.

The price of maritime transport experiences an unprecedented increase.On the China - Europe road, the average price of maritime freight has been multiplied by 4 between October 2020 and January 2021, and nothing indicates a decrease in the immediate.

Thus the tender contraction in 2020 created a "hysteresis effect", the return to the production before involving additional health and transaction costs, which pushes companies to increase prices at the exit from factory.

Finally, the rise in prices does not solve all the imbalances.If the newsagent has finished his stock of the day, whatever the price we offer he will not be able to provide us with.

Actuellement, la production d’automobile est profondément affectée par le manque de composants électroniques (comme les semi-conducteurs)) et des produits en plastique.These components become such a rare equipment that Taiwan did not hesitate to try a negotiation with Germany on an exchange components against vaccine vaccines.

At the end of the race, an increase in the price of cars is looming.Moreover, the manufacturer Renault has just increased its prices to compensate for the increase in costs, and makes other manufacturers pass the message to follow its example.

In the immediate future, it is not to be excluded that these shortages lead to a sharp increase in producer prices, and by ricochet, to high increases in consumer prices.In March, production prices increased in the United States by 4.2 % over the year (the highest increase since 2011)).The inflation rate made a spectacular leap, 1.7 % in February, at 2.6 % in March.

La zone euro est en retard de quelques mois sur les États-Unis et le taux d’inflation en Allemagne au mois de mars est de 1,7 %… quand dépassera-t-il les 2 % ciblés par la BCE ? Le rapport d’avril dernier du IHS Markit sur le PMI (Purchase Manager Index)) de la zone euro relève clairement ces tensions productives fortes, sur un fonds de reprise économique.The report also stresses that the manufacturing sector actively transfers the increase in costs on prices, and therefore on consumers.

The scenario that we draw is therefore a pessimistic scenario, which will bring together numerous shortages on products and revived inflation.This conjunction will tend to register in the duration, the operators in place taking advantage of these shortages and having no interest, due to the consequences of inflation, to go into debt and to significantly increase their productive potential.

Companies must take into account this change of model, to review their management of operations and strategies, in a world where the main obstacle to the development of activity will be the shortage of certain production factors, and not demand.

Radu Vranceanu, professor of economics, Essecet Philippe-Pierre Dornier, Professor in operations management, ESSEC

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