Author: Marek Pielach

Journalist at Obserwator Finansowy

The pandemic has accelerated the business cycle

“The process of cyclical economic slowdown began already at the turn of 2019. Both the current and the forecasted path of the synthetic indicator of the current situation would be similar, even if the coronavirus pandemic hadn't broken out,” write NBP economists in the Quick Monitoring Survey.
The pandemic has accelerated the business cycle

(©Envato)

In the first quarter of 2021, the synthetic indicator of the current situation of enterprises remained at a level close to neutral. In the chart we are approaching zero from below, while, for example, in the reading from the turn of  2010, the value of the indicator was minus 4, and at the turn of  2008 it was plus 4.

“A neutral economic situation will be reached in the second half of 2021, while clearly positive values of the indicator of the current situation can be expected in the second half of 2022,” predict the authors of the April edition of the Quick Monitoring Survey.

“It’s worth noting that the process of cyclical economic slowdown began already at the turn of 2019. The performed simulations suggest that both the present and the projected path of the synthetic indicator of the current situation would be similar, even if the coronavirus pandemic hadn’t broken out. In light of these simulations, the coronavirus pandemic has primarily led to faster (by approximately half a year) achievement of the local minimum (trough) of the business cycle,” the report reads.

The coronavirus pandemic has accelerated by approximately half a year the achievement of the local minimum of the business cycle.

 This conclusion is conditioned on the assumption that the pandemic will ultimately be a short-term and transitory shock for the companies. However, based on the April edition of the Quick Monitoring Survey, it now seems safe to make such assumptions. This is because more than 74 percent of the surveyed companies are in a good or very good situation (although this varies between the individual sectors, depending on the extent of the pandemic-related restrictions affecting the given industry).

“In the first quarter, as in the past year, the respondents declare that the effects of the COVID-19 pandemic and the related decrease in demand are among the major problems they are facing. It’s worth noting that the scale of these difficulties hasn’t increased for two quarters, although the situation remains varied in the individual sectors of the economy. At the same time, however, a decreasing percentage of companies declare that they haven’t encountered any serious problems limiting their activity. This means that in the opinion of the entrepreneurs, other difficulties are becoming increasingly important. They are particularly pointing to the increase in costs caused by the rising prices of raw materials and supply products. There is also a growing group of companies that are negatively assessing the effects of the imposed regulations, mainly in the area of fiscal law,” states the NBP report.

At the same time, however, companies are enjoying high levels of liquidity. The cash ratio even reached the maximum historic level. Additionally, the investment and employment forecasts are also improving.

From a perspective, it is therefore clear that the decline in economic activity as a result of the administrative decisions taken in response to the pandemic was deep and quick, but the speed of the rebound was also unprecedented. The shape of the letter „V” is now clearly visible on the key charts.

The NBP report even contains a table comparing the 2020 slowdown with the slowdown of 2008-2009. Their causes were different, but – interestingly enough – their timing within the context of the business cycle phases was similar. We can therefore state that after a period of very fast growth in the years 2006-2007, the Polish economy entered a phase of a a slowdown phase, which was further amplified by the demise of Lehman Brothers. More than a decade later, history rhymed – following a period of rapid economic expansion in the years 2017-2019, a process of slowdown began, which was further accelerated in 2020 by the shock of the coronavirus pandemic.

After the very fast growth recorded in the years 2006-2007, the Polish economy entered a slowdown phase, which was further amplified by the demise of Lehman Brothers. More than a decade later, history rhymed.

Differences can be noticed even when looking at the sales figures in both periods. The previous slowdown was preceded by a gradual weakening of the growth rate of exports in the years 2006-2008, and the current downturn was preceded by a decline in the growth rate of domestic sales in the years 2017-2019.

“In the years 2008-2009, the trajectories of the rates of growth of domestic and foreign sales had the shape of a letter L slightly skewed to the left – both the slowdown and the subsequent economic rebound were spread out over a period of roughly two years. Meanwhile, in 2020, the charts representing the rate of growth of domestic and foreign sales assumed the shape of the letter V, with a very sharp decline, but also a sharp rebound in sales,” reads the NBP report.

Both slowdowns also differ in the degree of severity for the individual industries. Back in 2008-2009, the slowdown was shallower in terms of aggregate sales, but it affected the majority of companies. The nature of the 2020 slowdown was different – some industries were subjected to administrative restrictions, while others even experienced strong growth in demand.

We should hope that – along with a gradual lifting of the restrictions – last year’s slowdown will turn out to be an isolated statistical anomaly, and not a real long-term crisis. Given, of course, that the epidemic situation allows for that.

 

The whole report has been made available on the NBP website.

(©Envato)

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