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November 9, 2021

US should focus on pandemic changes rather than recession – leading macroeconomic influencers

Reversal of longstanding economic trends are not likely to become permanent.

Some economists believe that the Americans should not worry about recession and recovery, but on whether any of the pandemic changes will last. Consequently, old lessons from the regular business cycles will probably become relevant again as the pandemic wanes.

Austan Goolsbee

Austan Goolsbee, an economist and the Robert P. Gwinn professor of economics at the University of Chicago Booth School of Business and former chairman of the Council of Economic Advisers, retweeted an article on the Covid-19 economic fallout having destroyed economies and impeded growth in various countries, but in his opinion, it was not a recession in the normal sense.

In his views, the pandemic downturn in the US and other countries has been like no other recession in the recent past. For instance, the economic contraction was driven by all the industries that were recession-proof like the usage of malls, electricity, and visit to the dentists worldwide. Additionally, countercyclical sectors such as education witnessed huge enrolment drops during the pandemic, unlike normal recessions that usually see a rise in demand.

Goolsbee believes that it is not about predicting a rebound in service sector industries, but about how quickly the virus spread can be checked. Therefore, although the US and other richer nations are suffering from an unusually high demand exceeding supply that is driving inflation and shortages, it is more important to understand the progress made against the virus. It is also important to understand how Americans, for instance, are spending on goods relative to services. Contrary to previous recessions, US spending on physical goods jumped to record levels in 17 years during the pandemic.

Arvind Virmani

Arvind Virmani, an economist and former Indian appointee to the International Monetary Fund (IMF) in 2009 and the chief economic advisor to the Government of India, shared an article on the Indian economy on an upswing, as per macroeconomic data. He stated that any macroeconomist who has understood the nature of the pandemic shock and economic reforms underway will understand the upswing.

Large-scale government spending and investor and industry optimism despite the lingering effects of Covid-19, could contribute towards a record 8.5-10% nominal growth of India in the fiscal year 2022. Experts believe that this growth rate could make the country the fastest-growing major economy. Both the World Bank and the IMF have set India’s growth targets in this range, which is eventually expected to boost growth to $5tn-$10tn in the next decade.

Apart from potential growth in relevant sectors such as agriculture, banking, and the corporate sector, India is expected to be recovering strongly in exports as well, which rose to $198bn at the end of September 2021, compared to $125bn last year. Likewise, imports rose to $276bn compared to $151bn last year during the same period.

Adam Tooze

Adam Tooze, historian and professor at the Columbia University and director of the European Institute, shared an article on why Spain’s economy is not recovering faster from the Covid-19 pandemic than other economies in the Eurozone.

Economists claim that weak household spending and supply chain bottlenecks are weighing on the post-pandemic rebound. Spain was the worst hit country in Europe by the economic impact of the Covid-19 crisis in 2020. It has since then been unable to progress to achieve pre-pandemic levels of output.

At the end of the third quarter this year, Spain’s GDP stood at 6.6% below pre-pandemic levels, with the economy having returned to its size in 2016. Leaders believe that the country’s recovery is probably the worst recovery in the world. Despite low infection rates, the country is failing to grow as fast as its neighbours.

Faltering household income, rising energy prices that have driven inflation, and a delay in using EU’s $928.32bn recovery fund, have been cited by economists as the reasons for Spain’s delayed recovery from the pandemic downturn.

 

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