At a glance
By Megan Breen
The COVID-19 pandemic has brought economic activity to a near standstill as countries imposed tight restrictions on movement to halt the spread of the virus.
The word unprecedented has been used a lot to describe the impact the pandemic has had and continues to have on economies across the globe. While that word may seem overused, as the health and human toll grows, the economic damage is already evident and represents the largest economic shock the world has experienced in decades.
The challenges that lie ahead are complex. INTHEBLACK recently discussed what needs to be done to pull the economy out of recession with four experts at a CPA Congress panel.
Manage the virus
The first obvious step to allow for any economic recovery to succeed is to be able to manage the coronavirus, says Dr Kim Leng Yeah, Senior Fellow and Director of the Economic Studies Program at the Jeffrey Cheah Institute in Southeast Asia at Malaysia’s Sunway University.
“Asia has done pretty well in terms of containing the pandemic, but quite a number of countries are still not out of the woods. Although we have moved from national lockdowns to localised lockdowns in the affected areas and there are signs of economic recovery, the fight to control the pandemic still remains a challenge.”
Dr Yeah says the unprecedented low interest rate environment coupled with massive fiscal stimulus across the world brings a challenge to be able to channel the huge amount of liquidity into productive investments while the virus remains uncontained.
“I think the greatest challenge to the recovery would be the ability to contain the pandemic so the economy can normalise. To do that we need to impose restrictions in order to successfully suppress the pandemic.”
From an Australian perspective, Nev Power, chair of the National COVID-19 Commission Advisory Board, says it is crucial to have sustainable management plans in place to cope with outbreaks of the virus for the immediate future.
“This means on an individual level looking after our personal hygiene and making sure… we get tested if we have symptoms. At a business level it means we need to minimise the interaction of people wherever we can… and make sure that we have contact tracing systems for our employees in place.
“At the government and health department level, we need to really embrace looking at the best systems that migrate those across the country and across nations as quickly as possible.”
Focus on growth
The biggest risk to economic recovery is a lack of growth, says New York-based economist Dr Dambisa Moyo.
“Without growth we end up with a pie that's not only shrinking, but is more heavily reliant on redistribution, which in the longer term is not going to be enough for us to pay our debts at the same time to fund education, healthcare, national security and infrastructure.”
Dr Moyo notes that not only will low growth prevent the funding of critical projects, but the impact will also see more disaffected people, a lack of trust in institutions and short-term public policies.
“The challenges we are facing require long term investment and we have to get involved with it now. We are not going to be able to deliver on human progress and improve living standards at the rate we would like to see that happen without economic growth.”
Paul Bloxham, HSBC’s chief economist for Australia, New Zealand and Global Commodities, says Australia’s recovery will be dependent on how it adjusts to the impact the pandemic has had on globalisation.
“The world is changing around us, and we need to take that into account in terms of the way we think about our growth outlook.
“One of the key risks we need to keep in mind is that the pathway of increased globalism looks as though [it] has slowed down substantially, and there are risks to that that will be costly in terms of impacting on Australia’s ability to grow.”
It’s also important to acknowledge sectors of the economy have been impacted in different ways and some will take longer than others to recover, Power points out.
“We need to look sector by sector as we come out of the transitory impacts of the coronavirus and make sure we are putting that fiscal stimulus into the right areas.
“Secondly, now is the time to make sure we are reforming the supply side of our economy through our business investment incentives to encourage businesses to invest in individuals to upskill and reskill so we come out of this stronger and better than when we went in.”
In an increasingly internationalised world, a global effort is needed to stimulate growth, says Power.
“It comes down to all countries to make sure that we can try and lift the most disaffected countries as quickly as possible and eliminate the coronavirus so we get everybody back onto the playing field, and allow the economic trade of goods and movement of people so we can continue to stimulate world economic growth.”
Plot the road to reform
Bloxham says now is the time to look at four major areas for reform in Australia, specifically making the tax system more efficient, improving competition policies, developing infrastructure and addressing climate and energy policies.
“This crisis is an opportunity for reform and the government's role is to target those four elements and make Australia a better environment for businesses to feel comfortable in investing.”
Previous global economic crises saw massive, coordinated investment from governments, says Moyo.
“The [US] government took the lead on enormous projects such as the Manhattan Project and the development of Silicon Valley. Those were incredibly important aspects of the backbone of what became the American story over the last 30 to 40 years.
“I think that is absolutely the key thing that we should be looking out for - I’m not just talking about government printing money in an inflationary way. I'm talking about governments that are forward leaning, governments that are focused on measured outcomes and are heavily data driven.”
Dr Dambisa Moyo, Dr Kim Leng Yeah, Paul Bloxham and Neville Power were part of a panel discussion during CPA Australia’s Virtual Congress, held on 10-12 November 2020.