Interview, Presentation
Covid-19: how to fix the economy
- Global GDP is projected to be approximately 7.5% lower by the end of 2020 compared to a scenario without the pandemic.
- Economic responses are expected to be swift and on a massive scale, potentially exceeding predictions set by previous shocks, with governments expected to act more capably on economic matters than on disease control.
- Governments currently possess fiscal space to support the economy due to very low interest rates and low servicing costs, though interest rates are expected to rise at an unspecified time, eventually forcing taxpayers to bear the burden of vast public debt.
- Policymakers are advised to avoid a quick return to fiscal austerity, as seen in the 2010s, and ensure fiscal policies become sustainable once interest rates rise and debt burdens are fully recognized.
- Government policies will likely shift from competition rules toward promoting national champions and international protectionism to bring supply chains closer to home, diversify them, and enhance resilience.
- The pandemic may refashion the relationship between the individual and the state based on patterns from 20th-century crises, with the principle of underwriting household incomes during large economic shocks likely to be applied in the future.
- Direct cash transfers are expected to be spent quickly and effectively by households, while furlough schemes carry the risk of keeping workers in non-viable "zombie jobs."
- Remote work is expected to be embraced by governments, potentially boosting long-term economic growth and reducing inequality by easing housing constraints near city centers, though the urban service sector may shrink.
- The current digital push is anticipated to accelerate economic change and drive long-term living standards, with the expectation that voters may support such disruption if risks are shared more equally.
- Political capacity remains an open question regarding the ability to forge a new government-individual relationship to manage these structural economic shifts.