The uncertain path to economic recovery – leading macroeconomic influencers
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The uncertain path to economic recovery – leading macroeconomic influencers

25 May 2021 (Last Updated May 25th, 2021 11:54)

The Covid-19 recession is a dual-shock recession marked by one of the slowest recoveries.

The uncertain path to economic recovery – leading macroeconomic influencers
Credit: FrankHH, Shuttestock.com.

Economists believe that recoveries from recessions marked by financial crises take longer than other recoveries. However, the Covid-19 recession, has not yet led to full-fledged financial crises until now.

Barry Eichengreen

Barry Eichengreen, economist and George C Pardee and Helen N Pardee professor of economics and political science at the University of California, Berkeley, shared a paper on the shape of recovery, and the implications of past experiences for the duration of the Covid-19 recession. Eichengreen categorised all post-1960 recessions in developed nations and emerging markets into demand, supply, and both-shock induced recessions to understand how long it will take to re-achieve the output levels and employment reached at the previous business cycle peak.

According to the International Monetary Fund (IMF), in April, a month since the Covid-19 outbreak, the 2020 downturn was the deepest recession experienced by the global economy since the 1930 s Great Depression. Additionally, economists noticed that not just the global scope but also the speed of the contraction of economies were magnificent. For instance, China’s GDP contracted by nearly 7% in the first quarter of 2020, while most Organisation for Economic Co-operation and Development (OECD) countries and emerging markets such as India, Brazil, Russia and South Africa witnesses even larger contractions in the second quarter of 2020.

On the prospects of economic recovery, Eichengreen stated that while one view forecasted a V-shaped recovery and a quick rebound, another warned that even a temporary lockdown could lead to macroeconomic damage and forecasted an extended U-shaped recovery. Superimposing all these factors, Eichengreen opines, was the nature of the Covid-19 disease and how it unfolded into a second and third wave, deflating all theories of recovery and giving rise to the W-shaped recovery.

Claudia Sahm

Claudia Sahm, economist and former director of macroeconomic policy at the Washington Centre for Equitable Growth, retweeted on Governor Lael Brainard’s latest speech on the Fed’s trying to factor in digital payments into the US context to understand the risks and benefits of central bank digital currencies (CBDCs). The Fed is now looking at stepping up its research and public engagement on CBDCs amid a global pandemic that has accelerated the migration to safe, cost-effective, and contactless payments.

The speech highlighted that the growing role of digital private money, the migration to digital payments, plans to use CBDCs in cross-border payments, and financial exclusion were sharpening the Fed’s focus on digital money. Brainard pointed at US citizens’ lack of access to bank accounts or lack of up-to-date bank information that contributed to high burdens on hard-to-reach households during the pandemic.

Tim Duy

Tim Duy, professor of practice and senior director of the Oregon Economic Forum at the University of Oregon, retweeted an article on how Fed officials anticipate price increases to ease up, while more workers join the labour force. Experts state that Federal Reserve officials have risked an aggressive monetary policy believing that they can avoid a conflict between stable inflation and returning employment to pre-pandemic levels.

The reality; however, was that April statistics showed slow job growth and an unexpected rise in prices in the US, with early data for May suggesting less hiring despite increased number of job postings. JPMorgan economists further described May credit card spending data as ‘muddling through’, with job growth projected at 488,000, half of what the Fed anticipated as the pandemic seemed to be easing and the economy reopens.