Macroeconomic Expectations Facing COVID19: A Sectoral Analysis

This chapter delves into the extensive ramifications of the COVID-19 pandemic on macroeconomic expectations across a spectrum of sectors within economies. Expanding beyond prevailing research on consumer expectations and their interplay with macroeconomic indicators, this chapter encompasses sectors such as services, industry, finance, and retail—all of which have been significantly disrupted by the pandemic's repercussions. Employing a latent factor model coupled with GMM techniques, the analysis constructs scenarios representing heightened, diminished, and unchanged COVID-19 infections and fatalities. Concurrently, the MMR model scrutinizes the intricate relationship between fatalities and the expectations held by economic agents in the European Union. The findings that emerge underscore a prevailing sense of pessimism across these varied sectors, bringing attention to a fascinating trend where nations with divergent fatality rates exhibit akin behavioral responses. Furthermore, the study uncovers that reductions in fatalities lack the equivalent positive sway on expectations, when contrasted with the negative sway generated by upswings. By augmenting our comprehension of how sectors respond to macroeconomic shocks over time, this research provides indispensable insights into the broader implications of the virus on economies within the EU. In so doing, it contributes to a more nuanced understanding of the pandemic's cascading effects.