GDP cannot be saved. Jobs can be.

Posted by: Paul Donovan

19 Mar 2020
  • Government (health) policy is to drive GDP lower. Other policies cannot stop that. What other policies can do is make sure that jobs are saved to help with the economic bounce back. This means helping small businesses. It also means keeping the bond markets open, to allow governments to fund their actions.
  • The ECB held an emergency meeting, switching from "not here to close spreads" to "no limits" (or "here to close spreads"). An asset buying program of over 6% GDP was announced. More important, self-imposed rules have been lifted – the ECB could target Italian debt. It will also buy Greek debt, and commercial paper.
  • The Swiss National Bank meets today. Negative interest rates are a tax on savers and banks. Taking rates more negative is like a tax hike. That is unlikely to help. A more negative rate would not push savers to cut savings and increase consumption – consumption is stalled by the move towards economic lockdown.
  • There are German and US business sentiment opinion polls due. These are not much use to anyone. US weekly initial jobless claims data is important. Job losses will dictate how long the slowdown lasts in the US. Saving jobs needs to become the US priority.

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