A country's industrial structure, the size of its firms and the nature of its fiscal stimulus could all determine the severity of its recession
upends productive activity across the world, the question now is how bad things will get. On April 14th thewarned that the global recession would be the deepest for the best part of a century. But the severity of the pandemic and the uncertainty around the duration of lockdowns are such that economists’ models, trained on business cycles in the post-war era, are of little use.
Take industrial structure first. Lockdowns will slam countries that depend on labour-intensive activities. Those with large construction sectors, such as many central European countries, look vulnerable. So do those that rely on tourism—it accounts for one in eight non-financial jobs in southern Europe. Conversely, those with large mining industries, which require less labour, may do better. Here Canada looks relatively insulated.
The shape of the corporate sector is the second consideration. Economies with a large share of small firms are more likely to be scarred by long shutdowns. Minnows tend to have few if any cash buffers, making it hard for them to survive a drought in revenues. A survey by researchers at the University of Chicago, Harvard University and the University of Illinois finds that a quarter of small firms in America do not have enough cash on hand to last even a month.
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