The difference between COVID-19 and a war - Natixis

FXStreet reports that according to Natixis, wars destroy useful capital. After the war, this capital has to be rebuilt, resulting in an investment and growth boom. The COVID-19 crisis is destroying capital that has become stranded in the sectors permanently affected by the crisis. This capital does not have to be replaced, so investment in these sectors will remain weak and the situation will be very different from that following a war.

“After a war, the capital destroyed during the war is rebuilt, because this capital is necessary (housing, infrastructure, factories, etc.). This leads to a very high level of investment and strong growth. We can look at the examples of the United Kingdom and France after the Second World War. This raises the question of why, after the COVID-19 crisis, which is also going to destroy capital, there will not be this same investment and growth boom as after the war.”

“The COVID-19 crisis is also going to destroy capital since some of the capital of sectors in permanent difficulty can no longer be used. This is the case in the automotive and aerospace sectors, tourism, traditional retail, air transport and oil and gas. In these sectors, a portion of the capital has become unusable due to the permanent loss of revenue. As this capital has become useless, it does not have to be replaced.”