Economists believe that central bank policymakers must be mindful of the risks associated with any given course of action, which includes inaction. Under the current conditions, a wrong policy move could have far-reaching and lasting effects on economies.

Mohamed A. El-Erian

Mohamed A. El-Erian, president of Queens’ College, Cambridge and chief economic advisor at Allianz, shared his views on the intensifying central bank debate in the eurozone, the UK and US on when and how quickly to phase out extraordinary stimulus measures implemented in 2020 in response to the Covid-19 pandemic.

Erian believes that policy changes by major central banks will have far-reaching consequences on countries’ economic and financial well-being. A simple way to frame the debate, he states, is to believe that there are two groups that agree that economic recovery can be high, durable, inclusive, and sustainable, but the route to get there is difficult, However, the economy has a good forward momentum. The two groups, however, disagree on whether the pedal-to-the-metal approach is good or risky.

Whether an uphiller or a downhiller, Erian states that the assessment should be based on addressing three current issues, that is, the inflation surge, the labour market issue, and the risk of a policy mistake not allowing the quick recovery of the economy from the pandemic.

Brett House

Brett House, vice president and deputy chief economist at Scotiabank, retweeted an article on whether Canada still needs more fiscal stimulus after a strong rebound from the Covid-19 pandemic. Some economists believe that permanent areas of government programme spending should be ideally financed through taxation, rather than borrowing. If the benefits exceed the costs, then the costs are worth paying for.

Accelerated vaccinations have led to a drop and easing of health restrictions across Canadian provinces, leading to activity in many sectors in the summer. The federal budget for 2021 outlined the rapid recovery in jobs, using it as a rationale for many of its spending proposals. In November 2020, the government planned a $100bn fiscal stimulus, and in the 2021 budget announced that this would go forward. This implied that the additional spending measures will be allocated across many years through 2025.

Economists believe that the case for stimulus today, has weakened as the economic situation has dramatically changed for the better. The latest jobs report shows that Canada’s current employment rate is 59.4%, which is just two points below or roughly 500,000 jobs to pre-pandemic levels. However, experts state that all government spending plans should not be scrapped, such as those extended to support housing and homelessness, R&D, increasing certain elderly benefits, additional public transport funding, supporting indigenous communities, and boosting childcare and early learning initiatives.

Chris Williamson

Chris Williamson, a chief business economist, shared an article on the global economic recovery losing slight momentum in June 2021. Regional differences continued to prevail, underscoring the impact of Covid-19 vaccinations as cases surged across many countries, notably in Asia. The emerging markets underperformed the developed world in the second quarter to a degree not previously recorded over the past 23 years.

Growth slowed down in both emerging market manufacturing and services, primarily because of renewed Covid-19 restrictions and lockdowns in an effort to fight the new virus waves. Meanwhile, the US recorded the strongest overall growth led by a growth in the service sector activities, followed by the UK. Experts state that rapid vaccinations led to the reopening of activities in the developed world.

Economists establish a direct link between vaccinations and economic growth across both manufacturing and services in their surveys, and find that countries such as the UK, with 67% of the population having received at least one dose of the Covid-19 vaccine to be experiencing the fastest economic growth. Meanwhile, countries like India with a lower vaccination rate, is witnessing the steepest downturn.