The global economic shock of the COVID-19 pandemic has brought about a long overdue conversation about future growth.
“As we emerge from the crisis, the quality and direction of economic growth must take primacy over its speed. In this new paradigm, we need metrics beyond GDP and an updated policy toolkit to ensure that future growth is inclusive, sustainable and provides opportunity for all,” said Saadia Zahidi, Managing Director of the World Economic Forum.
The latest report from the World Economic Forum on the global economic outlook post COVID -19, compiled following interviews with 40 of the world’s leading economists, seeks to assess the current economic outlook and consider how business leaders and policymakers should respond.
Entitled – Emerging Pathways towards a Post-COVID-19 Reset and Recovery, the report highlights three key emerging challenges that business and government need to face. These are:
1. Retooling economic policy to reduce inequality and improve social mobility
2. Identifying new sources for economic growth
3. Aligning new targets for economic performance
What should a recovery path consider?
We need answers and need to know how to respond to these challenges. The chief economists have noted five key elements to consider regarding the crisis and the potential path to recovery:
1. Stock markets may be too optimistic about the speed of recovery
While some financial institutions may be showing that recovery will happen, it is more effective to look at unemployment figures. These figures are a better guide to the global economic outlook than the current high of financial markets, according to most of the chief economists questioned for the report.
While early signs of consumer spending and industry product have encouraged financial markets, both remain far below previous levels and could still be derailed by a new wave of lockdowns as Europe enters winter later this year.
Markets may also not fully appreciate that firms protecting their profits by shrinking their workforce and reducing investments may lead to more unemployment, less innovation and less consumer spending in 2021.
The overall labour outlook remains highly uncertain and locally, it is predicted that it will be at least three years before South Africa’s labour recovers from the current losses.
2. This is a unique moment to tackle inequality
How the financial burden is shared in the future will be critical. As the Chief Economists’ Outlook says, the hiatus imposed by the crisis has created a unique moment to introduce far-reaching systemic change to prevent inequality spiralling further out of control.
This will involve governments monitoring inequality alongside other targets, upgrading social protection measures to safeguard against future shocks, and helping to develop socio-economic mobility in the new economy. A slight majority of the chief economists surveyed see some form of unconditional basic benefit – such as universal basic income – forming part of the policy toolkit after the crisis.
3. Rethinking tax could help governments build public trust
The chief economists also agreed strongly on the role of tax in addressing the inequality the pandemic has accelerated.
As tough choices are made about how to pay off soaring debt levels accumulated by government support schemes during the recovery, there is a big opportunity for governments to regain the trust of citizens whose chances of advancing economically have been dwindling for many years.
Adapting tax architectures is seen as an urgent requirement, including continuing efforts to curb tax evasion, settling on an international agreement to fairly tax digital activity, as well as rethinking wealth taxes and higher marginal income taxes.
4. Supply chain disruption could hamper developing economies
While reductions in the trade of physical goods due to lockdowns may be temporary, developing economies could suffer if companies take action to increase resilience in their supply chains by bringing critical parts back home or sourcing from several countries in parallel.
A move towards greater self-sufficiency as multinationals could do long-term damage to trading ties between high- and low-income countries. It remains to be seen, the report says, if businesses will be ready to give up efficiency for resilience.
However, one opportunity for emerging markets rests in the global acceptance of remote working – meaning nations could offer competitively priced services and imagine a new economic development model, which also entails a higher investment in human capital.
5. With the right action, new growth markets could emerge
The crisis is also expected to impact innovation, another key driver of long-term economic progress next to global integration.
Innovation is critical to overcoming the impacts of the pandemic and addressing inequality and the climate crisis. However, it could suffer as economic contraction threatens research and development resources.
Governments can put economic progress on the right track with robust innovation and investment strategies, but this will require deep transformation across all sectors. It will only be possible if public and private organisations work together and governments become actively involved in reshaping existing sectors and building new markets.
These new frontier markets – which range from green energy and the circular economy to health, education and care – could have a transformative impact on economies and societies, the report concludes.
That we will feel the impact of Covid-19 for many years to come is true, but perhaps even more pertinent is the unique window of opportunity society has been given to move on to a more inclusive and greener growth path for all.
With thanks and acknowledgement to the World Economic Forum for the information contained in this article. For more information visit www.we.org.
Knowledge is power! Sign up for our newsletter: https://www.buildinganddecor.co.za/register/
Subscribe to our free magazine on http://tiny.cc/floorsfreemag or join other discussions on http://www.facebook.com/buildinganddecor, http://www.twitter.com/buildingdecor and https://www.linkedin.com/showcase/10172797/