THE LONG WAY BACK FROM THE CORONAVIRUS SLUMP

Experts from all over the world are wondering how the global economy could recover from the current downturn, with most countries’ gross domestic product (GDP) risking catastrophic declines of 30 percent or even more in the second quarter of 2020. But uncertainties are still too high to bet on a rapid recovery – or what’s known as a V-shaped recovery – so we might end up going through a long, U-shaped depression or a W-shaped one, with multiple downturns.

By Sorin Melenciuc

With many economic sectors in a deep coma, most experts see a gradual recovery in the second half of this year

“Éramos felices y no lo sabíamos” (We were happy and we didn’t know it), Spanish newspaper El País wrote on March 19, at the beginning of the national lockdown in one of the countries that were most severely hit by the pandemic.

VANISHING WAY OF LIFE – AND JOBS From an economic perspective, the newspaper’s headline was a perfect fit as the world had been experiencing one of the most flourishing periods in human history before the coronavirus crisis. Most countries were posting strong growth, middle classes were expanding all over the world, tourism was booming due to higher incomes, and people were generally optimistic about their futures. But all of these vanished in the blink of an eye. With billions of people around the world forced to stay at home, airlines, tourism and HORECA businesses have closed down, demand for most non-essential goods plummeted, while thousands of factories across the globe took a long break.

As a result, unemployment rates exploded all over the world. Business shutdowns have led to a record 26.5 million people in the United States filing for unemployment benefits in five weeks since mid-March, and officials forecast that the joblessness rate could hit 16 percent in April. In Romania, more than a million employees filed for a state-run scheme of temporary unemployment benefits offered during the state of emergency, declared on March 16 – and supposed to last until at least May 15.

In fact, like Romania, most countries in Europe – with the exception of Sweden, which chose a “herd immunity” policy – have imposed major restrictions on people’s movements or even national lockdowns for around two months, leading to a long economic and social holiday with very unclear consequences. This situation has created a two-sided economic crisis: a crash in demand associated with a drop in supply.

SCALE OF THE CRASH In May, countries across the world will be gradually easing restrictions and putting an end to national lockdowns, but no one really knows how much of the economic activity will have survived the long holiday – and how many people will still have jobs. Many businesses will certainly remain closed for much longer or simply vanish – in tourism, HORECA or entertainment areas such as music festivals. But many others will certainly be hit by lower demand due to higher unemployment – a vicious cycle whose true scale is difficult

to figure out at this moment. According to Economy minister Virgil Popescu, economic activity in Romania had dropped by 30-40 percent by mid-April compared to the prepandemic period, and this number suggests a very hard economic landing.

In fact, many government officials in Romania and all over the globe are now trying to figure out how to cope with such a calamity and, even more importantly, how to restart the economy in a plagued world – and with public budgets running out of money at a very high pace. In the first quarter of this year, Romania’s general consolidated budget, which includes the government’s fiscal and social, recorded a deficit of RON 18.1 billion, or 1.67 percent of the estimated GDP, up 3.3 times year-on-year.

This worrying state of the budget means that the government has very little room for maneuver and needs money from the markets or other sources to finance its substantial spending. The situation is complicated by the fact that Romania last year registered a budget deficit of 4.6 percent of GDP, significantly exceeding the European Union’s recommended ceiling of 3 percent of GDP.

RECESSION OR DEPRESSION? With many economic sectors in a deep coma, most experts see a gradual recovery in the second half of this year and a stronger recovery starting from 2021, but there are many uncertainties on the horizon. First, no one knows how the pandemic will evolve and how long it will last. In the worst case scenario, mankind will endure the pandemic for years before researchers eventually find a vaccine or a cure. In the best case scenario, the virus will disappear this year or, more realistically, next year. But the pandemic will certainly have social and psychologic consequences – favoring distrust, isolation, and remote work. And the virus will certainly have dire economic consequences.

According to geopolitical expert George Friedman from Geopolitical Futures, the single most important question for humanity is whether what we are experiencing is a depression or a recession. “A recession is an essential part of the business cycle. Among other things, it culls the weaker businesses and redistributes capital and labour for better uses. It is painful but necessary and it ends as it began, as a function of a healthy economy,” Friedman wrote in a recent analysis.

“Depressions are not economic events;

they are the result of exogenous forces such as wars or disease. Depressions are not a necessary culling but a byproduct of the savage destruction of these external forces, which not only disrupt but destroy vast parts of humanity and decency, along with the economy,” he explained. The expert warns that the world would much more easily recover from a recession. “We will recover from a depression as well, but it will take much longer and involve far more pain,” Friedman writes.

Unlike recessions, depressions are economic events that are not created by economic forces. “Therefore, measuring the depth of a depression through economic measures alone is insufficient. The measure of a depression is the extent to which it destroys the hopes and dreams of a generation, making what had been in easy reach inconceivably far away, and taking successful people and reducing them to penury,” the expert says. “Among other things, if for example an economy were to contract by 30 percent, recovering from that by, say, a 4 percent growth rate would not be a triumph but a confirmation that we would be beginning to climb out of depression,” Friedman indicates.

However, the analyst thinks that the world has not reached yet the depression point. “I don’t think the numbers show it yet, and the despair of depression is not here yet either. But some parts of the world may have reached that point, and depression spreads its claws. The urgency on vaccines and openings I think reflects a sense of fear of reaching the breaking point,” he argues.

DEBT: SHORT-TIME CURE WITH SERIOUS SIDE EFFECTS In order to avoid such a scenario, politicians have little “therapeutic” options for the economy – and the main available tool is rising public debt. It is a tool that works when there’s still money on the table, because when money becomes scarce, the last option is to print more of it.

Romania’s situation is made worse by its poor fiscal performance history and by its low credit rating – the lowest classification in the “investment grade” category at all the three major rating agencies. In April, Fitch and Moody’s both cut their rating perspective – from stable to negative. For Romania, losing its investment grade rating would translate into losing access to many sources of money and paying higher interest rates. And such a scenario will further push the burden of the debt, which is set to increase rapidly even in a moderate scenario. As a result of the deterioration of the fiscal balance and the economic recession, Moody’s expects Romania’s debtto-GDP ratio to increase to 43.7 percent by the end of this year, from 35.2 percent of GDP in 2019. “Looking ahead, Moody’s forecasts Romania’s deficit to narrow gradually to 6.2 percent of GDP in 2021 (from 7.7 percent of GDP in 2020) and 4.4 percent of GDP in 2022. Under this scenario, public debt would reach 46.8 percent of GDP in 2021 and 47.8 percent of GDP in 2022,” the rating agency wrote in its latest country report. This means that Romania’s public debt will soar by 12.6 percent of GDP in three years – a very expensive coronavirus bill for the Eastern European country.

Digital gets boost during COVID-19 pandemic

By Romanita Oprea

Digital media has enjoyed two-digit growth in the past years, reaching over 20 percent market share in 2019, based on Media Fact Book, Initiative’s yearly report. For 2020, the agency predicts a continued increase in share, but on a declining market.

Catalin Florea, Initiative

How is media spending being impacted in Romania and what kinds of trends are we seeing? “Our industry, through each media agency, is working hard to prepare reports and analyses for each client and each category of products in order to advise clients on a suitable media approach. Some industries are of course significantly affected, but if a client decides that this is a good period to communicate with their customers and take advantage of the fact that the competition is silent to gain a bigger voice, it’s a good strategy,” says Claudia Chirilescu, owner Spoon Media.

Media suppliers are offering discounts for campaigns that run during this period, agencies are more flexible with their services and fees, so clients with available budgets can

Claudia Chirilescu, Spoon

take advantage now. “Initially, the answer was quick, but not very determined, as the situation was developing very quickly. The market was volatile during most of March, and then it slowly began to settle, as data built up to support new strategies. Some businesses had to reduce exposure, especially if they were hit hard by the lockdown. Others stayed on air but shifted focus towards public service messages or relevant offers. Some even increased their exposure to take advantage of the increased demand, for instance in e-commerce and pharma. From the outside, much of this effort to adjust remains behind the scenes – the result was continuity rather than improved communication. From a creative point of view, reactions have been very cautious, mostly echoing official advice in a straightforward manner,” said Catalin Florea, head of product at Initiative.

According to Dana Bulat, general manager and owner of United Media Services, media-wise, agencies and clients are always looking for efficiency. “We have to reach them in a meaningful way as well. The context in which we place our campaigns, the content we are using, the tone of voice of the message are even more important than they were in the past. We are surrounded by an ocean of negative and alarming, fake, and sensational news that in fact is no news at all, so it is very important how we select the media and the content we are placing in ads without losing our primary objectives of coverage, engagement, and fair cost,” said Dana Bulat.

Meanwhile, Alexandra Iordachescu, brand

lead at Starcom, has a positive attitude and believes in the power of adapting to new situations and sees challenges as a great manner of proving oneself. “From setting up work from home protocols in record time to adapting communication plans to the current context, people have proven agile and efficient in coping with these changes. From our perspective, as a media agency, we have seen more opportunities to act as communication consultants for our clients. We have provided dedicated data analysis and research that proves the importance of not going dark people usually listened to radio while they were in their cars, but it is also true that certain radio hosts have quite a strong bond with their listeners, who continue to listen at home as well. Additionally, young and active people were already listening to either live shows or podcasts online, and this had been happening for a while already,” said Dana Bulat. Moreover, “we’ve seen a progressive shift of budgets from traditional (offline) media towards complementary digital channels. YouTube or other digital video platforms are very efficient in reaching light TV viewers, while podcasts

during difficult times. Real time action has always been the backbone of a media agency – daily monitoring, scanning projects, acting immediately for the benefit of our clients - so we are used to taking short-term actions with medium and long-term benefits in mind,” she stated.

SHIFTING BUDGETS In this changing environment, it’s only natural for budgets to shift from one type of media to another, and even for some to be cancelled. Therefore, will we see budgets moving from outdoor, radio and maybe even TV, towards digital advertising? “Yes, we are seeing this trend, but we think it is for a short while, especially because people have been on lockdown in their homes and OOH campaigns were mainly addressing people on the streets, both drivers and pedestrians. As for radio, I think it was a collateral victim. It is true that or audio streaming are the perfect extensions for radio. The process is natural and in line with the media consumption behavior,” added her colleague, Dragos Andronache, head of digital at United Media Services. According to Catalin Florea, advertising follows media consumption. Currently, people are more present both online and on TV. “Advertiser presence is lower, mostly due to the hard hit industries, as I mentioned before. For businesses that have not been disrupted by the lockdown, this is an opportunity – getting access to more people in a less crowded environment. And to seize this opportunity, both TV and digital touchpoints can do a good job. Digital comes with an important tactical advantage – lower requirements in terms of production value,” Florea notes. At the same time, as he points out, some brands may prefer to go digital in order to be agile, at a time when TV production is very difficult. “Radio streaming video content. TV is now gaining viewers through news, sporting events broadcasting, live or recorded entertainment shows, and old movies. If you think about it, many of those will move to streaming. Now sports events organizers are negotiating with streaming services, news is already online, and so are movies. All the platforms that offer video on demand have grown a lot worldwide and TV is in danger. Digital media will flourish and will become more and more sophisticated, segmented, and specialized,” Chirilescu said.

reception has also turned digital due to a shift from in-car listening to online streaming and social engagement. However, some digital touchpoints which are perfectly adapted to the lockdown are also difficult to address for advertisers – think of Netflix and WhatsApp,” added the Initiative representative.

In turn, Claudia Chirilescu believes that since summer is coming and people will start going out more, outdoor will be in high demand again, but maybe with some additional discounts. “In my opinion, on a medium-long term, TV content will move to

“Radio is still a highly used medium, as it did not just depend on commuting consumption. Here we’ve seen maybe the most rapid adaptation to the context, with dedicated programs and shows that come with a clean and positive editorial content, with useful information that is highly trusted by the listener,” also added Alexandra Iordachescu.