The numbers amaze. Economies stopped and now as we get new data coming off such a pulverised base, the percentage growth numbers can dazzle on the upside. This can take forecasters by surprise – recent jobs numbers in the US are a good example, as are British retail sales.
Economic growth is a good thing – very good. But hard as it might be, the focus needs to be on the quality of that growth as much as the quantity.
On issues such as sustainability or climate change, this does seem to be taken on board. There is a clear green tinge to many public investment initiatives. Governments have been made aware of the demands of the public, especially the younger cohort, for a clear green agenda in practically all sectors. An example of how the emergence from the pandemic will have a greater sustainability imprint is the fact that the Swedish government attached conditions on carbon emissions as part of a recent financial injection into the airline SAS.
There is another area where we need to be vigilant and that is income inequality. It was already a severe and growing problem in many countries and could worsen now. There are clear social consequences from the trend, but there is also an economic fallout as inequality slows growth and leaves permanent scars.
Covid-19 has disproportionately hurt disadvantaged groups. While many have been adversely hit by the health emergency and the government’s mitigation measures, those with a lack of savings or insurance are impacted the most by a sudden loss of income.
Workers in the informal economy with weaker job attachment or those in low-skilled service-sector occupations have also borne the brunt of the lockdown. In the developing world, employment numbers for those with only basic skills tend to fall by 5 per cent over a five-year period following a pandemic, according to the International Monetary Fund. Higher skilled workers and those with advanced education fare much better.
Educational prospects have been severely affected by the global lockdown. The United Nations estimates that more than half a billion children have lost their access to education through this period. Lack of internet access and lack of appropriate devices is a significant factor in this, and according to the UN, primary school children have been affected the most. While a concern globally, with potential long-term consequences, it is especially a problem for emerging economies, which face higher levels of “learning poverty” – an inability to read or understand a simple text by age ten.
Another feature of income inequality is that many people and indeed small companies don’t have full access to financial services and technology. Limited access to credit increases vulnerability both at individual and company level when cash flow simply stops. This leads to job losses and business closures which in turn further widen the gap.
History shows that the greater the pre-existing inequalities, the more uneven the impact of a pandemic. Income equality will hold back the strength and durability of growth.
In some countries, the early experience isn’t great. In the US many of the financial measures aimed at lower income groups are set to expire in August with little appetite from Republican politicians to extend. On the other hand, a lot of tax breaks and provisions favour the already wealthy; according to a US Congress Committee, 82 per cent of those who stand to benefit earn at least $1 million annually.
It is good that governments around the world have deployed extraordinary measures swiftly and will continue to do so, but the shape of that investment matters if we’re to prevent long-term scarring of the global economy.
Healthcare and social protection need to be high on the agenda if we are to prevent repeating the mistakes of history. Education needs investment with a view to ensuring wider access to the digital classroom. Failure here may cast the longest shadow. Access to high quality childcare must expand, which in some cases may boost female participation in the labour force and ultimately increase long-term growth.
It will be important to harness the power of technology in other areas as well as education. Financial inclusion can matter. If we broaden the access of low-income households and small businesses to finance, it may be possible to smooth the experience during a cash-flow shock. The IMF estimates that there can be a 2 to 3 percentage point difference in GDP growth over the long term between financially inclusive countries and their less inclusive peers.
Education, healthcare, social protection and technology should all be points on the compass as we navigate a path out of the downturn. It would be important that there is co-operation and cohesion within and between regions. Policy measures, where they can, should be concerted and consistent.This could be the challenge in a world where borders and minds may be closing.
Eugene Kiernan is an independent investment strategist