In some countries, the epidemic of the coronavirus is gaining momentum, but the consequences of stopping the economy even under the most favorable development of events can be devastating, and the survivors automakers risk losing independence.
German magazine Spiegel has published a forecast of the Munich Institute for economic research (ifo Institut) about how much will shrink the German economy over two months of total quarantine. According to experts, the fall could reach 20 percent, which will cost the German Treasury of half a trillion euros, with more than a million people in Germany remain out of work. During a three-month quarantine losses will rise to 730 billion euros.
Overall, the budget is rich in Germany stand the shock, but the fact that the effects of the crisis caused by the epidemic is likely to be long-term, unemployed from to attach anywhere, and social pressure can become unbearable for the state. This Clemens Fuest, President of the ifo Institut, makes a simple conclusion: Germany needs now is not to spare no money and effort, to mobilize and expand the healthcare system to reduce the downtime of the economy and the scale of the coming economic and social disasters.
The problem of the forecast of the ifo Institut in the fact that even the calculations made on the basis of expectations three-month quarantine too optimistic. Last week a group of epidemiologists at Imperial College London published a study according to which the fight against the global epidemic will take at least a year, and most likely half or even more, depending on local measures of rehabilitation and success in vaccine development. The economies of individual countries and the global economy of such a long downtime will not stand: the annual quarantine means poverty and hunger, which will die more people than the coronavirus. Therefore the authorities, on the basis of new scientific data, will have to find a balance between quarantine and paralysis.
Yet it is clear that those two or three weeks or even a month of downtime, which took all the European plants is not a solution and not the end of the problem. Yes, in China after about six weeks the quarantine was able to restart production, but it works in conditions of high epidemiological risk, that is, can be stopped at any time if the number of infected will begin to grow again. Consumer activity in the conditions when the danger has not passed, too, leaves much to be desired, and the Chinese market while only dreaming about the same volume of transactions.
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America and Europe to turn dream that they managed to slow down the epidemic as quickly as in China, but we need to act decisively and fairly authoritarian methods, and neither American nor European bureaucracy is not ready. Instead of prompt the erection of hospitals of modular containers, as it was in China, Western governments are discussing with automakers the possibility of organizing production of the ventilator (artificial lung ventilation), and other medical equipment in their facilities. How long will it take these discussions and how many people during this time will die, it is terrible to imagine.
In Germany the automotive industry is the core of the national economy, and the example of this country, we are likely to see will change the industry in connection with new realities. France already rumors about the possible nationalization of Renault (now the state owns only 15% of the shares), to which the coronavirus was not in the best shape due to the disorder of relations within the Alliance with Nissan. Jean-Dominique Senar, Chairman of the Board of Directors of Groupe Renault, was forced to deny the rumors, but admitted that demand for some models of the company fell by 90%.
Of course, the government will support the auto business and to inject it in the budget, however, if the epidemic drags on for a year, then no money is not enough, and some key enterprises really have to be nationalized, some will go bankrupt and disappear forever. Nationalization in protracted crisis threatens and many other key sectors of the economy (air and railway transportation, medicine, food, mail, etc.), that is the capitalist model in the form what we have seen up to 2020, will cease to exist. What will replace is not yet clear – the leaders of major countries are now literally determine the fate of the world and the future shape of reality. If you can fairly quickly (within the next weeks) to find some working compromise between total quarantine and preservation of economic vitality, there is a chance to return next year to the same regulatory mechanisms and the level of consumption. Alas, to believe in it less and less.
What is your prediction?