Report
Patrick Artus

Fall in supply (of goods and services) in some sectors: What economywide effect?

Some economic sectors (industry, construction, retail, restaurants, transport) are being hit by a negative shock to supply (of goods and services): the new health standards brought about by the COVID epidemic will reduce productivity in these sectors. What effect will this negative supply shock and resulting fall in production in these sectors have on the overall economy? It will depend on two factors: The degree of substitutability between demand for goods and services produced in these sectors and demand for goods and services produced in other sectors. If this degree of substitutability is high, demand will shift from the goods and services whose production has fallen to the other goods and services; The capacity to increase production in the sectors that are not hit by a loss of productivity (capacity to hire and reallocate capital to these sectors). Under a best-case scenario, demand is highly substitutable between both types of goods and services and the capacity to increase production in the sectors where productivity has not fallen is also high: there would then be no overall loss of production .
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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