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Global personal savings jump during the pandemic – leading macroeconomic influencers

15 Apr 2021 (Last Updated April 15th, 2021 08:03)

Government pandemic assistance has gone beyond higher direct transfer payments across high-income economies.

Global personal savings jump during the pandemic – leading macroeconomic influencers
Credit: felipe caparros, Shutterstock.com.

Economists believe that government pandemic assistance has has contributed to smaller declines in earnings given the depth of recessions.

James Picerno

James Picerno, a journalist, shared an article on how household savings soared in the US and other high-income countries during the Covid-19 pandemic despite decline in wages and other private income streams.

However, data also suggested that consumer spending plummeted in the US and other high-income countries with the arrival of the pandemic.

Economists believe that the savings glut in the US during the pandemic is indicative of how fiscal policy is driving the saving boom, through social benefits and other income support measures.

As a result, large-scale government assistance pushed household income above its pre-pandemic trajectory for countries such as the US, Japan, and Canada.

The fall in consumption was, however, sharpest in the second quarter of 2020, reflecting stricter Covid lockdowns in place.

Spending picked up over the second half of the year, but the recovery was meagre. Consumption was still below pre-pandemic levels towards the end of 2020.

While consumer spending weakened across all high-income economies, the extent of declines varied widely. For instance, US spending held up best, dropping by 3% of pre-pandemic personal income.

Meanwhile, spending in the UK dropped by nearly 12%. Other countries reported a drop by 6 to 7%.

Simon Wren-Lewis

Professor Simon Wren-Lewis, an economist, shared an article on two types of recovery from the Covid recession, or how plutocratic populism cannot be fought by returning to the recent past.

According to Wren-Lewis, Biden is showing the European Union (EU) and the UK how to recover from the deep recession.

Forecasts reflect that the US has enacted a large stimulus package ($1.9tn mainly directed to individuals followed by at least $2bn on infrastructure), while Europe has been more modest in its expansionary measures with a 750bn recovery fund.

Wren-Lewis discusses the relative merits of undershooting and overshooting and thereby running the economy a little hot after the recovery.

He states that the downside risk is not a problem if you are trying to run the economy hot, because you will just be running it cooler.

However, the downside risk of undershooting are serious, as that means a more extended recession with interest rates unable to fall because they are stuck at their lower bound.

Dany Bahar

Dany Bahar, an economist, shared a discussion of the state of global poverty as a result of the Covid-19 pandemic.

According to Homi Kharas, deputy director for the global economy and development programme at the Brookings Institution, India could have lower poverty numbers in 2030, given less economic shocks to endure. In addition, these numbers would maybe not be as low as without Covid, but still very low.

Meanwhile, for a big country like Nigeria, with a population of more than 200 million, it has been a big shock to bear.

However, as the country has had no growth or dynamism in its economy, the length of time it takes to recover from the Covid-induced economic shock is going to be much longer and the impact on poverty is likely to be much more long-lasting and scarring.

Therefore, whilst in an economist sense, the Covid-19 will turn out to be a temporary shock in most places, for a lot of poor people and economies it will become a permanent shock, Kharas added.