BoE MPC member Jonathan Haskel said in a speech that the coronavirus lockdown can be thought of as a “supply shock” to the economy. But at the same time, consumers’ behavioral response” could be though of as a “demand shock”. “Evidence is emerging that the dominant driver of activity will in fact be on the demand side,” he added.
“When the economy re opens, customers might still fear infection and therefore stay away from consumption that has a social element to it (pubs, restaurants etc.). It seems likely that such demand weakness will therefore drag on the economy and hold back the recovery.”
“The path of recovery crucially depends therefore on the fear of infection, which in turn depends on the mix of public (e.g. track and trace) and private (e.g. screens in shops) health measures undertaken. It also depends on the fear, or realisation, of unemployment, as weak activity and capacity constraints on the operation of surviving businesses, and insolvencies, translate into a fall in the demand for labour.”
