The economic effects of coronavirus could be minimal if the authorities take action In this regard, Florin Cîţu, the interim Minister of Finance and appointed Prime Minister, wrote on Facebook on Thursday, stressing that this is his personal opinion.
“Fiscal policy” to the rescue ” How should economic, fiscal and monetary policies respond to the economic shock resulting from the COVID-19 epidemic? The answer is directly related to the channel through which this shock is transmitted to the economy. shock that is transmitted on the demand side? Both? “, said Cîţu.
He analyzed both indicators in turn
“If the impact is transferred to the economy on the supply side, that means a reduction in production. People stay at home and production stops, I saw this effect in Chin where in the first quarter the data show recession. Low production means higher prices in the short term and also short-term inflation, “he said.
on the other hand, if the impact is transferred to the economy on the demand side then we see a reduction in demand in the short term, people no longer leave the house and no longer consume goods and services (after accumulating supplies). prices, an increase in stocks and finally a reduction in production, Cîţu wrote on the social network.
The economist ‘s conclusion is that in both cases production is declining, which means lower economic growth.
” International institutions already estimate lower global economic growth in 2020 by about half a percentage point. That is why the first response came from central banks, which cut interest rates. This measure introduces liquidity into the economic system (helps demand) and lowers production costs. But is it enough? Is this the best measure? “The Prime Minister-designate asked.
From his point of view, although it is a very good measure, it is not enough.
“Having Given that global supply is likely to face a supply-side shock, both monetary and fiscal policy are needed to mitigate the economic effects of coronavirus, but fiscal policy can act much more directly in supporting long-term production. “At the same time, fiscal policy is best placed to support measures implemented by the Ministry of Health to reduce the magnitude of the coronavirus epidemic, but also to treat patients,” he said.
In his opinion, we are facing a different situation than 10 years ago.
“In 2008/2009, monetary policy had the right tools. Today, fiscal policy is called upon to support because it has the most direct impact (see Eorogrup press release yesterday). I said it and I repeat it. Romania also has the resources and fiscal tools to deal with this shock without any problem. We were careful, we took into account several scenarios and now it is clear “, said Cîţu.
According to him , there is another effect of the shock on the supply side that will make the global economy recover quickly. Companies will invest heavily in production technology in the coming period.
“I expect the economic effects of COVID -19 to be minimal in terms of a rapid response of fiscal policies (after the monetary policy response). The combination of fiscal policy and investment in technology fully recovers the loss suffered globally in the second quarter. The key is to respond quickly! So far, Romania has responded very well and it is clear “, he concluded.