OECD: Evaluating the initial impact of COVID-19 containment measures on economic activity

The OECD paper stresses the immediate impact of the fall in activity following confinement and lock-down. CICA has analyzed what this could mean for infrastructure.

The OECD paper points to immediate measures that would allow to support the economy, households and businesses. Among them:

  • Temporary reductions in investments (this statement requires clarification on its exact scope);
  • Half cuts are assumed in construction activities;
  • Reductions of 15% or more in the level of production in advanced economies and the main emerging economies after the full implementation of containment measures.

In all economies, this impact is explained by the drop in production in the retail and wholesale trade, as well as in professional and real estate services.

The potential impact on consumer spending is greater than that of total GDP due to:

  • the drop in spending is partially offset by a drop in import demand;
  • consumer spending represents only about three-fifths of the GDP of the G7 economies.

In addition to the financial support from the ECB (€750 billion) and the European Union, the actions of the 28 member states (including Great Britain), are amounting €2,000 billion. The efforts in the US are similar.

In Europe, the suspension of the double limitation of the budget deficit to 3%/year and of 60% of the public debt compared to the GDP of the Stability and Growth Pact (PSC), could very likely strengthen the usual divergences between European countries of the North and South on the conduct of the budgetary policies.

In the medium term, as soon as the primary consequences of the health crisis have been contained, there might be strong pressure to control and reduce public deficits. It is to be feared that the trade-off between measures to support businesses and household consumption and public investments, in particular those for traditional network infrastructure, could work against the latter.

Many French economists note that public investment is the permissive prerequisite for private investment and growth. E. Heyer (Observatoire Français des Conjonctures Economiques), says that public investment allows for the reduction of public debt.

To preserve the maintenance of public investment in infrastructure, if not to amplify it, it would be useful for many economists to express themselves on this theme, either directly or through Think Tanks in which they collaborate. The works of French economists and Think Tanks could be shared with other European and Latin American experts that FIEC and FIIC could approach and mobilize.

Read the full OECD Report (5 pages).