April 03, 2020
After medical concerns, economic concerns take centre stage in Greece
What economic fallout is to expect from Covid-19? It depends on how long the lock-down lasts and how quick supply chains recover. Germany just lifted its Covid-19 work ban for seasonal workers. This will allow farmers to bring in 80,000 workers to assure the harvest, starting with the white asparagus season. Without the help of those seasonal workers, crop would go to waste and there would be food shortages. Economic concerns are beginning to make their way to the front line of political decision-making.
The lock-down brings the tourism sector to a standstill. Even if the situation is under control by June, air connections will need time to be re-established and it will take even longer for people to regain confidence and travel for leisure.
Transport is another sector hugely affected by global trade drying up. Shipping transport took a hit when the first factories closed in China. Lorries and their drivers returned to their home countries. This will take time to come back to normal. As EU countries are on different points in the pandemic curve, supply chains will remain affected even if the home country re-emerges from the lock-down earlier than others.
The closest experience of an economic meltdown of this magnitude in recent history is Greece. The country experienced a near standstill of its economy in 2010-2012, under the first bailout programme. The Greek government tried to close the fiscal deficit by €36bn or 15% of GDP, with an ensuing contraction of the economy by 9% yoy. The big difference is that 2010-2012 was a country-specific crisis while this pandemic is a global crisis that hits both external demand and internal consumption.
Macropolis uses the 2010-2012 crisis to look at what to expect from the present crisis in Greece. The two big revenue generators are transport and tourism. Given the experience of the last crisis, they expect a fall of more than 30% in transport receipts. The 2018 data also suggests that Greece is at risk of losing €17bn if tourists stay home this summer. On the domestic front, Macropolis expects a double-digit fall in consumption by households under lock-down. They have an even grimmer view on investment, which could be a third lower, similar to the 2010-2012 crisis. About 90% of all Greek businesses are currently under some form of support, covering 2m of employees and self-employed, which represents more than 50% of people in employment. Public spending is thus compensating partially for the private-sector contraction. Even if one assumes that after two quarters of massive contraction the Greek economy will recover in the third quarter, the country is bracing for an economic slowdown this year similar to the 9% contraction in 2011. This would be the best case scenario. Macropolis' data comparison suggests that it could easily be worse.