[Interview] "Economic Impact of COVID-19 Resurgence Will Be Very Different from the First Wave"… Warning from French Economist

Professor Philippe Martin, Chair of Economic Analysis Committee of French Government
Companies' Financial Conditions Already Poor Due to Initial Spread... Bankruptcies Will Increase if Respread Occurs
Consumption, Investment, Employment Decisions Shift to Demand-Driven Recession

Philippe Martin, Chairman of the Economic Analysis Council of the French Government and Professor at Sciences Po Paris

[Asia Economy Reporter Jeong Hyunjin] "The economic impact of the resurgence of the novel coronavirus infection (COVID-19) will be very different from a few months ago."

The chairman of the French government's Economic Analysis Committee recently expressed strong concerns about the global resurgence of COVID-19. Philippe Martin, chairman and professor of economics at Sciences Po Paris, stated in a written interview with Asia Economy on the 22nd, "Companies whose financial conditions were weakened by the first wave will suffer greater damage, shaking the expectations of a quick return to normalcy."

Chairman Martin, a macroeconomics expert and researcher at the Centre for Economic Policy Research (CEPR) in Europe, has been focusing on the economic impact of the COVID-19 crisis. After studying at Sciences Po Paris and Paris Dauphine University, he earned his Ph.D. at George Washington University in the U.S. He has worked at Sorbonne University and has been with Sciences Po Paris since 2009. From September 2001 for one year, he also worked as an economist at the Federal Reserve Bank of New York.

He is closely watching the economic effects of the resurgence because recent signs of COVID-19 spreading again worldwide are serious. In the U.S., confirmed cases are rapidly increasing again, and in Europe, concerns about resurgence are growing, especially in Germany, after economic reopening measures. A cluster infection at a slaughterhouse in Germany led to the re-closure of public places such as museums and gyms. The World Health Organization (WHO) recently stated regarding the increase in confirmed cases, "The peak is still far away."

Martin particularly warned that the financial structure of companies could worsen further after the resurgence. He said, "The financial condition of companies is more vulnerable than during the initial spread earlier this year," predicting that "this will push companies into bankruptcy, and consumers will increase savings as a precaution." He added, "Expectations for households and companies have turned pessimistic, and consumption, investment, and employment decisions are shifting to a long-term demand-driven recession," calling it "the biggest economic risk in the post-COVID era." He emphasized the government's active role, saying, "We must avoid extreme economic damage caused by strong second lockdown measures."

Regarding the difficult situation of the European economy, Martin viewed consumption as key. According to the International Monetary Fund (IMF)'s June economic outlook released on the 24th (local time), the Eurozone's economic growth rate this year is -10.2%, a sharp drop from -7.5% in April. France, Italy, and Spain are expected to experience double-digit negative growth rates around 12%, and Germany's GDP is expected to decline by 7.8% this year. The economic damage is expected to be more severe than in the U.S. (-8.0%), Japan (-5.2%), or Brazil (-9.1%). He emphasized that "household incomes within the Eurozone (19 countries using the euro) were mostly protected during the lockdown, consumption was very limited, and savings increased significantly," stressing the importance of reassuring households and companies with the government's message that it will "do whatever it takes."

Regarding COVID-19 measures at the European Union (EU) level, he evaluated them as "disappointing initially." Although governments of countries such as France and Germany have successively announced economic stimulus measures, there has been division in joint responses. At the end of last month, the EU Commission announced a recovery fund plan worth 750 billion euros (approximately 1,024.7 trillion KRW), but member state leaders are still in conflict over the form of support, whether grants or loans. The EU is striving to reach an agreement before August.

Martin said, "The political atmosphere is changing," expressing the view that grants are appropriate to help countries most affected by COVID-19 with high debt levels. If loans are provided, the loan period should be long. He emphasized that the recovery fund proposed by the EU Commission will complement each country's economic stimulus measures. Considering the ongoing need for support to revive demand and supply, he added that the recovery fund will be implemented next year when national stimulus measures decrease.

Regarding trade negotiations between the U.S. and the EU, he said, "Trade tensions will continue at least until the U.S. presidential election and will add unpredictability to an already volatile situation." The U.S. Trade Representative (USTR) announced on the 23rd that it is considering imposing additional tariffs of $3.1 billion on 30 European products, including olives and chocolate. He particularly predicted that even if Democratic presidential candidate former Vice President Joe Biden is elected, the U.S. trade policy's protectionist stance will not change significantly, suggesting that trade conflicts may be prolonged.

Martin has a close relationship with French President Emmanuel Macron, who has been pushing economic reforms since taking office. He served as an economic advisor during Macron's tenure as Minister of Finance, Industry, and Digital Affairs and during his presidential campaign. Regarding France's economic reform progress, he said, "Given the current economic structure, it seems more difficult to push reforms, but awareness of corporate tax cuts has relatively increased, making it somewhat easier to take related measures."

This content was produced with the assistance of AI translation services.