Date: 19 May 2020

The Economic Orchestra in the Times of Coronavirus – Instruments to Fight the Pandemic

The coronavirus pandemic has affected various aspects of people’s daily lives around the world. It has also significantly changed the economy. For the global market, this situation results in competing for two main things: positions in the global supply chain and applying the best economic strategies. Marek Dietl, President of the Warsaw Stock Exchange, is talking about the condition of world trade and the strategies of different countries to unfreeze their economies. He is also describing mechanisms these countries apply to save them, as well as the condition of the Polish stock exchange and world exchanges.


Izabela Wojtyczka, The Warsaw Institute Review: How do the world’s largest economies cope with the coronavirus pandemic? What is the position of the Polish economy among them, and what strategy has our country adopted?

Marek Dietl, Warsaw Stock Exchange: The situation is changing very dynamically in the times of the pandemic, and the anticipatory indicators (informing about the expectations concerning the economic situation) fluctuate according to reports on the progress of research on the treatment and vaccine for Covid-19.

It seems that the future economic situation will be shaped by three phenomena. Firstly, the pandemic has clearly accelerated the cyclical downturn. For over ten years, the global economy has been developing quite dynamically – this has been particularly visible in Asia. However, moments of prosperity are usually followed by slowdowns. In the last few years, more less prosperous countries have become the beneficiaries of globalization. Meanwhile, there have been more victims of this process among richer countries. Moreover, Covid-19 has already weakened trade and strengthened protectionist tendencies. The third element is social pressure to stop the transmission of the virus very quickly. In response to this expectation, politicians have taken far-reaching steps, which could be called an “economic freeze”. This action has resulted in supply chain disruptions.

Various countries are now competing to be the first to safely unfreeze the economy and give their businesses the chance to take attractive positions in global supply chains. The countries of East Asia have a natural advantage in this race – they are furthest away from the infection trajectory, and in various ways, they effectively discipline their societies.

Germany sees its chances in very well-organized scientific work. Determining that coronavirus particles left on objects do not have active DNA and cannot reproduce, the extensive action of testing people for antibodies (which allows identifying those who are no longer infected) and the advanced work on vaccines make it possible to “unfreeze” the economy. In turn, the USA and Sweden have simply decided not to freeze their economies, which results in a large number of cases but also reduces the supply-side negative economic effects of the pandemic.

When it comes to demand, all countries act similarly, opting for expansionary fiscal and monetary policy aimed at maintaining the liquidity of businesses and employees. Work is also underway to provide cheap development funding. The confusion in the global economy opens new opportunities. The question is now who and how will use them.

Is today’s situation already an impeding major global economic crisis? How can we prepare for it, and what is its scale?

First, let us look at the available statistics. GDP data and other macroeconomic indicators for most countries for the first quarter of 2020 are not available at the moment, but there are other figures within our reach that we could use to make forecasts. In the United States, for example, statistics show that a further 5.25 million people have applied for unemployment benefits within one week until Saturday, 11 April. This means that the total number of unemployed has reached 22 million people in the last four weeks. Economists believe that the unemployment rate in the USA could already rise to 15% – the percentage similar to the level after World War II. The Bank of America estimates that there may be a decline in GDP growth (-7.6% in 2020), followed by a +8.3% increase in 2021. This could translate into an economic contraction of almost 15% in Q1 and 50% in Q2.

The current state of the global economy, however, and the expectations of selected analytical centers do not take into account the perversity of human nature. Covid-19 has captured our attention, and it is the reports on this subject that have drastically influenced our behavior. The introduction of vaccines and medicines for this coronavirus may completely change our decisions. Thus, the results of the research process are, by definition, uncertain. The illumination of one researcher or the entry of whole scientific teams into a blind alley may overturn all our predictions.


But based on what we are already observing today and the initial data that you have presented, we rather need to be prepared for the significant economic problems of individual countries – including a substantial increase in unemployment. What tools are these countries using to save their economies?

Well-organized countries, including Poland, have already set up their economic orchestras in which they play various instruments: medical, social, and financial. I know less about the former two than about the economy, so I will only be able to say general things about them. It seems that we have to come to terms with the partial restriction of our freedom. We are already obliged to cover our mouths and noses. In Asia, people with masks on the streets and in public transport have been the norm for many years. For us, Europeans, this is a significant change. The quick isolation of people who have had contact with those infected is probably also a necessity. In China and South Korea, mobile phone data is used for this purpose. We consider checking who we have had contact with to be a violation of our privacy, but we will probably have to accept it. Precise and selective isolation is crucial. Our health will be checked frequently. Metal detecting gates will test our body temperature, and more and more professional groups will undergo rapid medical tests. Travel, and especially air travel, will also depend on our health. These and probably other preventive measures must be put in place by governments in order to quickly and permanently “unfreeze” the economy.

And what about the financial instruments?

The first step is to guarantee liquidity. The key to success is being able to coordinate fiscal and monetary measures. In Poland, it was possible to create a system providing liquidity support both for citizens and enterprises in a very short time. Now, it is already necessary to introduce solutions, increasing the chances of Polish companies to take advantage of the opportunities of the crisis. The solutions adopted by the government in the Capital Market Development Strategy, especially the new instrument – the development bond, are in line with this strategy. Holders of these securities are exempt from capital gains tax. It is necessary to introduce this instrument as soon as possible so that companies can gain additional funding channels. This would translate into a fiscal stimulation. Moreover, it could become a vital tool to support companies in building their competitive position after the crisis. What is evident is that certain conditions would have to be met. The issuer of bonds would have to declare that the acquired capital would be allocated for development. The bonds would have to have an investment rating and be admitted to trading on the public market. The issuer would sign a contract with a market maker, and the coupon paid to investors would be based on a fixed interest rate, with a minimum maturity of five years. The potential benefits for the economy and our companies would be very important. We would, in this way, create another long-term source of funding for companies.

I would also like to ask you about the Polish stock exchange – what will change in this area?

There will be no revolution in the stock market due to the pandemic. Changes will be relatively small. Once again, the stock exchange has proved to be resistant to the turmoil, both from an internal and external perspective. The security of trading is still assured. Within a week, 75%, and after three weeks, more than 95% of our employees moved to remote work. All instruments can still be bought and sold with no interruption.

In times of pandemics, our services have also been moved online. We conducted two stock exchange debuts online and moved our financial education, including the Stock Exchange School, to the Internet.

Have other world’s stock exchanges also managed to succeed in this area? Are there any common trends or special mechanisms? 

In the first quarter of 2020, both European and US markets saw large drops in share prices. European indices fell by around 25% compared to the beginning of the year: FTSE 100 -24.8%, Euro Stoxx 50 -25.6%, DAX -25.5%, CAC 40 -26.5%. The situation on the American market was similar: DJIA -23.2%, S&P 500 -20.0%, NASDAQ -14.18%. This means that the reaction of investors was similar.  Nobody knows, however, what the further development of the epidemic in Poland and worldwide will be like and how it will translate into changes in the prices of financial instruments.

I am glad that in March, almost 29 thousand investment accounts were created in our country. The last time when such a large increase was recorded was nine years ago. Although the pandemic continues and its impact on capital markets around the world is visible, this situation not only does not discourage individual investors but even activates them. This time constitutes a specific generational experience for all citizens, so those who start investing will naturally remember that their adventure with the stock exchange began in this exceptional period. A new generation of investors can invest online, and the capital market is technologically ready for this situation. This is our competitive advantage. Our indices are also struggling to reach higher levels, and there is a chance that people who are currently opening accounts will stay with the stock exchange for longer. The vast majority of new investors are people educated in economics who are aware of their investment decisions. They know that stock markets have survived the Asian crisis, the time of the dot-com bubble, the collapse of Lehman Brothers, or the 1970s stagflation. New investors probably believe that after the current storm, the sun will shine again, and eventually, the capital markets will rebound.


Were there significant decreases in any particular country?  When – if at all – is a return to the “old” situation expected, how long will countries be able to sustain their economies? What effects on the world economy can be predicted once the pandemic is over?

Similar declines have been recorded for most stock indices. The global situation is still too uncertain to be able to forecast precisely when economies of individual countries will return to normal and what consequences they will have to face.

One of the potential effects of the pandemic will likely be a global reflection concerning what economic areas constitute strategic resources for the state. The “domestication” of many economic sectors will begin. The biomedical industry and IT sector will probably be the first. When it comes to other areas – it will be a more selective process.

The role of the European Union is crucial in all this. If everything is done in accordance with the principles of the common market, Poland, as a “European factory,” will be the beneficiary of these processes. If national egoisms win, the European Union will lose its competitiveness due to the sub-optimal allocation of resources. This struggle for freedom and economic equality is currently taking place in the European Union.

The current situation may also lead to structural changes in the economies. For example, disrupted global supply chains will constitute an opportunity for innovative companies to replace those which are currently doing less well. Those who can deal with the virus threat most quickly will gain in importance. It is certain that right now, the fight against the pandemic and caring for people is of crucial importance. From an economic point of view, however, you have to be ready to act quickly once the epidemic is dealt with. To do this, it is necessary to maintain the economic potential. Easy access to credit in spite of difficult times, subsidizing jobs, and maintaining “imported” labor resources are the most important actions making it possible to win in the global reshuffled economy.

Could we say then that the coronavirus pandemic will stimulate innovation?

In innovation rankings, especially in the level of R&D expenditure, Poland has been climbing gradually over the last few years. Unfortunately, the absorption of new technologies by private companies remains its weakness. As far as digital technologies are concerned, there has been a real breakthrough, even in medium-sized enterprises.

Unfortunately, a growing concern for R&D projects is now their funding. Increasing the limit of funding research projects from public funds, for instance, offered by the National Centre for Research and Development, would be an idea worth considering. The limit on the share of public funds for development activities in a large enterprise now amounts to 50%. Perhaps it would be a good idea to increase it to 70% to improve the situation further.

An interview by Izabela Wojtyczka – The Warsaw Institute Review

Marek Dietl is an advisor to the Polish President Andrzej Duda, a lecturer at the Warsaw School of Economics, and an expert at the Sobieski Institute. He holds a doctoral degree in economics from the Institute of Economics of the Polish Academy of Sciences. Apart from his expert and academic career, he has extensive business experience gained in an international strategic consulting company and the venture capital industry. Since September 26, 2017 he has been President of the Management Board of the Warsaw Stock Exchange.

All texts published by the Warsaw Institute Foundation may be disseminated on the condition that their origin is credited. Images may not be used without permission.

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