Weekly Briefing, Vol. 30, No. 3 (SK), June 2020
Corona-crisis – the outlook
Unfortunately, even a few months after the outbreak of the coronavirus, we cannot say that we have won the fight against the pandemic. In Slovakia, however, the situation eased to such an extent that the government could gradually come up with individual phases of the release of the adopted anti-epidemiological measures. The release takes place in individual phases, while its acceleration will allow entrepreneurs, at least in part, to adapt more quickly and compensate for lost profits. In an effort to minimize the negative effects of the pandemic on human health and lives, the measures taken in Slovakia were rather radical. Closed schools, restaurants and gastronomy services, ban on cultural and sports events. All this has significantly affected the country’s economy and will have a serious negative impact on these sectors.
Restaurants, cafes and patisseries traditionally represent the centre of social life in Slovakia in the spring and summer. They were one of the first to close. According to the Association of Hotels and Restaurants of Slovakia, a more than 50% year-on-year drop in sales is expected, in the amount of about EUR 560 mil. About 68,000 employees in this sector are at risk of losing their jobs. The association pointed out that none of the measures taken was specifically aimed at promoting gastronomy. On the other hand, already in the first phase of the releasing of measures, it was possible to serve packed food or to deliver it. Subsequently, the outdoor terraces were opened and, in the last phase of the release of the measures, the interiors of the restaurants. However, the mandatory spacing and distance of the tables will not allow restaurants to serve full capacity.
The ban on holding cultural events is also gradually being eased. However, it is clear that the holding of major cultural events this year is passé. Culture is one of the most affected sectors. The We Stand by Culture initiative conducted a survey from March 10 to March 27, which was attended by 269 natural and 201 legal entities operating in the cultural and creative industries. As many as 60% of the responses came from freelancers, which only points to the most vulnerable group working in the creative industries and culture. The Institute of Cultural Policy quantified the average loss for natural persons at an average of EUR 2,000, for legal persons at up to EUR 21,000. The most preferred measures that could help to overcome the crisis period are a lump sum of financial compensation through the so-called de minimis aid. More than 50% of respondents prefer this assistance. The current setting of minimum state aid does not cover all entities. Other preferred measures are the guarantee of a flat income, especially for the freelancers, and for legal entities, a one-off financial compensation for selected fixed costs or concessions in drawing subsidies. As part of the measures already taken, the government discussed the amendment to Act no. 96/1991, which includes contractual security in times of crisis, in particular:
- protection of cultural organizers in relation to sanction fees and fines;
- protection against return of entry, e.g. by extending the validity of the ticket or providing vouchers;
- suspension of 2% deductions to funds, contributions to funds on a voluntary basis;
- cultural activities can be promoted on TV as public interest announcements.
In addition, Slovak Investment Holding has prepared a so-called anti-corona guarantee – a financial instrument that SIH has prepared for the cultural and creative industries – bridging loans for entrepreneurs.
Cultural institutions, such as cultural houses, remain a significant problem in the field of culture. They recorded an average loss of up to EUR 27 000 and, as their primary activity is to organize events which have been and will be cancelled to a greater extent, they have no income. These cultural homes in the district towns are therefore in danger of extinction if the government does not take targeted measures to support them.
A similar fate befell sport in Slovakia. We assume that after the crisis, many sports clubs, especially participants in minor leagues, will have to close down. Some clubs are even no longer able to pay athletes. However, the positive outlook is that local recreational sports can experience a revival. Above all, it will be village football, which was very popular in Slovakia, but its attendance has been declining in recent years. Sport is a huge branch of the economy, which has reached the social and economic pedestal. Sport earns money not only from the sponsorship of brands that build huge marketing in this way, but also from the sale of broadcasting rights to matches. Since there are no big matches, there is also no income. Thus, after the corona-crisis, sport will probably undergo a major revitalization, which will certainly also concern financial self-reflection.
We assume that people’s desire to attend cultural or sport events will grow, which could be observed already during the release of the measures. However, we must not forget that the level of attendance will be affected by the financial vitality of the people. Satisfying cultural and leisure needs, such as enjoying a glass of lemonade in a restaurant, is at the top of Maslow’s pyramid, which means that if people have to tighten their belts, they will spend less. This can significantly jeopardize the functioning of these sectors.
The Ministry of Finance estimates that the current crisis will be deeper and longer than the crisis in 2009. It turns out that the current profit-oriented economic model will need to be reformed globally to become sustainable and socially secure. The current development is characterized by the highest index of uncertainty since the Second World War. According to the Ministry of Finance, the unemployment rate should climb to 8.8%, while nominal wage growth will be only about 1.6%, real wages will not increase at all. Many people could find themselves in existential distress. The government is currently working to mitigate these negative social impacts. Mothers or parents who had to stay with their child at home during quarantine measures receive so-called quarantine treatment. They will not lose this money transfer, even if they decide not to put their child in school after opening in June. In April, an amendment to the Social Insurance Act was approved, which waives the payment of social insurance premiums, including mandatory contributions to pension savings, under the conditions stipulated by law. This applies to employers and entrepreneurs who had closed for at least 15 calendar days in April.
Unfortunately, it is estimated that the current crisis will have a negative social impact. Some companies have announced redundancies, but in the larger case, redundancies are expected to take place after the measures are relaxed. The decline in sales and production will cause the closure of some operations, or the rupture of some supply chains. The redundancies will result in an increase in poverty, with around 20,000 people increase expected in Slovakia. Such materially deprived people, for example, cannot afford to eat meat or fish at least every other day, have arrears associated with mortgages, loans, electricity or rent, cannot afford a holiday outside their home once a year. At the same time, the inability to repay mortgages can ultimately seriously endanger banks, although they have also been protected in recent years by significantly limiting the maximum amount of loans granted in relation to the value of real estate. In addition, the UN estimates that the most vulnerable group in the context of a pandemic will be children, who are not directly at risk from the disease but from associated aspects of the crisis – in particular the socio-economic impacts and negative impact of postponing sustainable development goals. For example, there is a risk that the positive trend of poverty reduction in recent years may be reversed, with children who have remained at home after school closures also facing domestic violence in the family.
Thus, the pandemic affected not only human health but the economy and, ultimately, the quality of life of the population. It seems necessary to reassess some societal priorities and focus on a sustainable economy, which, in times of crisis, is proving even more necessary. The absolute reduction of environmental pollution during the slowdown in economic activity remains a positive aspect, as evidenced by measurements in Slovakia. So what humanity was not able and willing to do for the environment was ultimately provided by nature itself. It therefore remains to be hoped that we will learn from the crisis on many things, even if its consequences are expected to be dramatic. Therefore, it will be important for governments to jointly prepare long-term strategies for boosting the economic activity, as our mutual interdependence affects our further development. All of this will have to happen at the cost of unprecedented growth in government deficits and budget deficits, which is not desirable, but even the far-right economists are now confirming the need for rapid and large-scale state intervention.
Sources:
Ministry of Culture of the Slovak Republic
Ministry of Finance of the Slovak Republic
Association of Hotels and Restaurants of Slovakia
The biggest threats associated with social life
Author´s own processing