Introductory Remarks at the “Corporate Liquidity and Solvency in the Covid-19 Pandemic: The Role of Policies” Virtual Conference National Bank of Romania & International Monetary Fund
IMF News, February 12, 2021
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- Introductory Remarks at the “Corporate Liquidity and Solvency in the Covid-19 Pandemic: The Role of Policies” Virtual Conference National Bank of Romania & International Monetary Fund
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- Authors: Alfred Kammer
- Published: February 12, 2021
Latest outlook for Europe and key observations
- The pandemic caused "the worst peacetime global contraction since the Great Depression" and remains "challenging and highly uncertain."
- Europe contracted by about 6 percent in 2020, "a contraction that is 1 percentage point smaller than previously projected."
- Emerging Europe GDP contraction in 2020 is now estimated at 2.8 percent, "almost 2 percentage points smaller than in the previous forecast."
- For 2021 growth projections:
- Europe: 4.1 percent
- Emerging Europe: 4.0 percent
- Romania: after contracting by about 5 percent in 2020, "it will expand by a bit more than the emerging-Europe average."
- The rebound in Q3 2020 "exceeded our expectations significantly," leading to an upgraded 2020 growth estimate in the January WEO Update.
- Winter 2020–21 developments:
- Surging infections and new variants led to widespread lockdowns.
- The 2021 GDP growth projection was revised down by 0.6 percentage point relative to the October forecast, though "the output level at end-2021 is still projected to be higher than in the October WEO projections" because of better 2020 outturns.
Vaccines and international divergence
- Vaccines are the "game changer for 2021."
- Assumptions: "broad vaccine availability in advanced economies and several emerging economies by the summer of 2021."
- Many other emerging economies, including in Europe, will take longer to make vaccines broadly available.
- There are "inevitable start-up problems in the production and rollout of vaccines" and "a particularly large divergence of non-EU emerging economies."
- Romania: "Romania’s vaccination rate has been one of the highest in Europe lately."
- Policy implication: "They could benefit from a more effective global coordination to accelerate the vaccine production and its distribution."
Policy priorities for 2021
- Three priorities:
- Scale up the production of vaccines and accelerate their rollout globally.
- Maintain economic policy support to "continue to bridge economies until widespread vaccinations and herd immunity allow the return to a new normal." Specifics:
- In 2020 discretionary policies and automatic stabilizers provided support of about 8 percent of GDP in advanced European economies.
- In 2020 discretionary policies and automatic stabilizers provided support of 6 percent of GDP in emerging Europe excluding Turkey and Russia.
- Emerging Europe should "build on its robust policy support in 2020, which in some areas approached the level of advanced Europe, albeit after a slow start."
- Transition policies from general lifelines to targeted support for firms with "good post-pandemic viability prospects," and facilitate worker transitions from declining to expanding sectors.
Corporate sector policy findings and needs
- Without deployed policy measures, "a large share of firms—accounting for 15 percent of employment and about 25 percent of value added of the corporate sector—would have been unable to cover expenses, with liquidity pressures pushing many into bankruptcy."
- Support to date has been "more effective in covering liquidity shortfalls."
- Additional equity support is necessary to stabilize viable firms, "including during a prolonged recovery phase."
- Estimated equity gaps in Europe: around 2½ percent of GDP.
- Policy focus: "improve the scale and effectiveness of policies to support the corporate sector," shifting from liquidity lifelines to equity and restructuring measures as recovery becomes entrenched.
Introductory Remarks by Alfred Kammer, Director of the European Department at the International Monetary Fund, February 12, 2021.