Oliver Mangan: Not the time for governments to pare back Covid-19 economic supports
There is every chance of a sustained and robust recovery taking hold during 2021 and into 2022, given the likely arrival of a vaccine. File photo: Leah Farrell / RollingNews.ie
The number of new coronavirus cases has increased in recent weeks in many countries, posing a growing threat to the economic recovery.
Governments, particularly in Europe, are responding by introducing partial lockdowns and increased restrictions.
The impact of the new restrictions is most keenly felt in the services sector, with survey data for September showing a clear loss of momentum, most notably again in Europe and financial markets are increasingly concerned about the rising number of new virus cases.
The S&P in the US has fallen by almost 10% in September, bond yields have declined, credit spreads are widening, oil prices have fallen back, while the dollar and yen are in the ascendancy on currency markets. These are all the classic signs of risk aversion and a flight to quality in financial markets.
The second wave has so far not proved anything like as severe as the first wave.
Good progress is also being made in developing a vaccine, which is expected to become quite widely available over the course of 2021.
Economies have also shown resilience by rebounding strongly over the summer.
The OECD now sees the world economy contracting by 4.5% this year, compared to its previous forecast for a 6% decline, and is projecting 5% global growth for next year.
Our latest #GDP projections for 2020 ⤵️
— OECD ➡️ Better Policies for Better Lives (@OECD) September 23, 2020
🌐 -4.5%
🇿🇦 -11.5%
🇦🇷 -11.2%
🇮🇹 -10.5%
🇲🇽 -10.2%
🇮🇳 -10.2%
🇬🇧 -10.1%
🇫🇷 -9.5%
🇪🇺 -7.9%
🇷🇺 -7.3%
🇸🇦 -6.8%
🇧🇷 -6.5%
🇨🇦 -5.8%
🇯🇵 -5.8%
🇩🇪 -5.4%
🇦🇺 -4.1%
🇺🇸 -3.8%
🇮🇩 -3.3%
🇹🇷 -2.9%
🇰🇷 -1.0%
🇨🇳 +1.8%#EconomicOutlook https://t.co/oyZlPq4LYn
However, there is no doubt that the rebound in activity is now losing momentum and a challenging period looks to be in store for the world economy over the coming six months or so.
This is not the time for governments to change course and end supports. Rather they need to double down, as otherwise there could be even greater economic challenges next year and beyond.
The UK Chancellor seems to be listening, unveiling some additional measures last week.
Here, Finance Minister Paschal Donohoe may well do likewise in next month’s budget.
However, across the Atlantic, a political logjam in Washington ahead of the November elections means that additional fiscal support may be delayed.
There is every chance of a sustained and robust recovery taking hold during 2021 and into 2022, given the likely arrival of a vaccine.
Pent-up demand, elevated household savings, and the supportive stance of monetary and fiscal policy all highlight the scope for economies to rebound from next year on.
But governments must stay the course for now.
