While these combined effects could act as a brake on productivity growth, they can be effectively offset if firms and policymakers use this crisis to modernise our economies. This includes promoting the digital transformation and refocusing supply chains to fully exploit the allocative efficiency offered by the Single Market.
Such reform efforts will be crucial to smooth the sectoral reallocation which could result from the damage that even mild distancing measures inflict on labour-intensive service sectors. While a countercyclical fiscal push can help sustain aggregate demand in the transition, fiscal space 1/2  BIS central bankers' speeches  may not be available in the countries most affected by the crisis.