It is futile to seek similarities between the health crisis and other previous crises. This pandemic that we are suffering worldwide is unprecedented in our recent history. However, its negative consequences can be contrasted with the effects of other crises from the past. Learning from this will help us overcome current difficulties as soon as possible and lay the foundations for an inclusive and sustainable recovery.
The economic crisis began with a supply shock derived from the lockdown. The response of authorities within the framework of international cooperation has focused on preserving the productive fabric and compensating for lost income. Nevertheless, uncertainty regarding the duration of the pandemic and job losses is depressing productive investment and consumption. Furthermore, the prolongation of these extreme expansionary fiscal and monetary measures is perceived as a medium- and long-term risk once the return to normality begins.
Despite the exceptional nature of the current situation, we can learn from the past when assessing the impact on potential output and how it materializes. This will help authorities design a more efficient strategy for a post-COVID future. Many analyses draw from the oil crisis of the 1970s or the world wars—localized and temporary events that had a more or less limited economic impact over time. More persistent is the effect derived from financial crises, which develop over long periods and tend to be accentuated through financing restrictions and capital stock.
The current economic weakness resembles a supply crisis more than a financial one. The solidity of banks has allowed the flow of financing to be maintained as a fundamental part of the measures to mitigate the impact of the health crisis on families and businesses. However, banking entities must be prudent and responsible. And not only them; their responsibility must be shared by both governments and supervisors to avoid financial risks in the future that do not currently exist. In the medium and long term, well-designed measures must be implemented to increase potential growth, focusing on employment and combating imbalances that already existed before the crisis and which may have been accentuated by the official response, such as financial asset inflation or debt growth.
Differences from the past also arise when considering potential allies for both short-term recovery and medium- to long-term strengthening, such as the digital revolution. Technological innovation not only improves our quality of life but has also become a lifeline for many companies in this new model of limited face-to-face contact. It is a fundamental asset for achieving a more productive and sustainable economy. Digitalization changes corporate behavior, production models, consumer preferences, and relative prices. Its future economic impact will depend on the economic structure and government decisions, as well as the measures taken by the companies themselves to ensure their survival.
History has made it clear that crises have medium- and long-term effects on the economy, with terrible impacts on unemployment and supply that can only be effectively corrected through structural reforms. Everything suggests that European funds will help us boost short-term growth and achieve a solid recovery, provided they are channeled through a well-designed strategy focused on digitalization and sustainability. We must all contribute to its achievement. Banks are already doing so by adapting to client preferences and implementing measures to enhance efficiency, thus reinforcing their indispensable role in the future prosperity of all.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
