The recent rise in the number of Covid-19 cases has dictated a return to confinement, both geographic and temporal, across Europe. This second wave will thus dictate a significant change in the economic conditions underlying the present State Budget proposal.
In this sense, the month of November will mark the return of the reduction in economic activity with industry and services contracting substantially, and some sectors stopping altogether.
When it is approved, just a few days from the new European Central Bank (ECB) forecasts for the eurozone economy, in early December, the macroeconomic scenario foreseen in the State Budget for 2021 will be quite out of date.
More than a document, the budget is the instrument for the execution of economic, financial, fiscal, social, environmental policy, whose credibility must not be questioned, otherwise it will not be effective in practical terms. The management of expectations of economic agents and the execution of the plans included therein, are the pillar for the realization of economic growth, based on investment and private consumption.
Now, this second wave of the pandemic brings with it the return of instability to companies and consumers, who, given the uncertainty about their future earnings, prefer to save and wait for more visibility, postponing consumption decisions.
In view of the halt in economic activity, companies will tend to have difficulty refinancing their debt, as the main financial indicators will deteriorate substantially.
The ECB, at its meeting on Thursday, has already indicated that, in December, it will increase support for the European economy, by strengthening asset purchases, maintaining negative interest rates and supporting market access by banks and governments. Another concern has to do with companies' access to the capital market, mainly through the refinancing of existing debt.
The recent fall in financial markets, in some cases exceeding 10%, demonstrates the fragility of investor sentiment and the nervousness installed, which may close this financing door to companies.
The ECB, like the other central banks, will continue to support the economy, creating investment opportunities, such as those that occurred in March. In these times of volatility it is important to maintain the objectives, despite the negative news, and if possible to strengthen investments financial resources.
The State Budget must be an instrument that complements the performance of the ECB, and encourage the use of the capital market by both companies and families. Doing nothing is condemning and circumscribing Portuguese savings to state funding.
The author writes according to the old spelling.