(Bloomberg) — Prime Minister Boris Johnson vowed the U.K. will spend large sums on hospitals, schools and roads to jump-start the economy as it emerges from the coronavirus lockdown that has plunged the country into what may be the worst recession in three centuries.
In an interview in the Daily Mail, Johnson rejected a return to the austerity policies that followed the 2008 financial crisis and said the country will “build our way back” from the crisis through “shovel-ready” projects.
“The lesson is to act fast and we’re going to make sure that we have plans to help people whose old jobs are not there any more to get the opportunities they need,” Johnson said. “We are absolutely not going back to the austerity of 10 years ago.”
Johnson is expected to unveil the spending plans in a major speech on Tuesday, while Chancellor of the Exchequer Rishi Sunak is leading a new infrastructure task force to identify and speed up projects. The government pledge comes at a critical moment after the U.K. economy shrank a record 20.4% in April, effectively wiping out almost 18 years of growth in two months.
The crisis has sparked an intense internal debate among Tories who for decades have stood for the free market, fiscal prudence and libertarianism, and are now on course to spend well over 130 billion pounds to rescue the economy.
Boris Johnson Plunges His Conservatives Into an Identity Crisis
The plans come as Britain braces for a surge in unemployment, with economists surveyed by Bloomberg expecting the jobless rate to hit 8% in the third quarter –- double its current level. That would see unemployment surge by about 1.4 million to more than 2.7 million, levels not seen since 1994.
The U.K.’s furlough program is due to run until the end of October, with firms taking on more of the huge 60 billion-pound ($74 billion) cost of the payouts from August. Speaking on Bloomberg TV on Friday, Sunak said the country cannot afford to continue the scheme “indefinitely,” but indicated there would be more targeted support for the worst-affected industries.
Former Labour Party leader Ed Miliband on Sunday called for the furlough program to be extended beyond October, saying the government was “pulling the rug” from under parts of the economy that are unable to reopen.“The cost of not acting is greater than the cost of acting,” Miliband told the BBC’s “Andrew Marr Show.” “I fear Thatcher levels of unemployment,” a reference to the mass job losses under Prime Minister Margaret Thatcher that saw the number of people out at work peak at almost 3.3 million in 1984.
Labour has attacked the Conservatives for not scheduling a full Budget in the summer. Speaking on Sky TV’s “Sophy Ridge on Sunday,” Shadow Work and Pensions Secretary Jonathan Reynolds called for a focus on “jobs, jobs and jobs again,” including work guarantees for those unemployed for a significant period of time. A similar initiative known as the Future Jobs Fund was introduced by Labour in 2009 in the wake of the financial crisis.
In a separate interview with the Mirror newspaper, Johnson said children must return to school in September, raising the prospect that parents could be fined if they don’t comply. The prime minister criticized teachers opposed to returning, saying they must “take their responsibilities seriously,” according to the paper.
(Updates with comments by Labour’s Miliband in seventh paragraph)
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Reconstruction planning must take into account existing economic trends – Policy Options
Before COVID, decarbonization and digitization were already reshaping the economy. A massive reconstruction planning effort would address the trends.
While the government has begun to consult broadly about the conditions needed to reopen the economy post-pandemic, it needs to think and plan with two other longer-term economic trends in mind: the rapid diffusion of digital technology and the transition to a post-carbon economy. The policy measures needed must support the adoption and use of digital technologies, as well as promote the transition of our energy systems to sustainable sources of energy.
Economic changes of this magnitude are rare occurrences. The last time Canada experienced change on this scale was in the reconstruction that followed the Great Depression and the end of the Second World War. Some commentators have even compared the current emergency to that wartime situation with the virus as our enemy. While this analogy is a bit stretched, one aspect of it is highly relevant – the need for post-pandemic reconstruction planning.
The changes in patterns of social behaviour and economic activity that will follow the pandemic will intersect with the broader changes already underway, on a scale comparable to that which occurred after 1945 in the transition from wartime production to a peacetime economy.
Wartime production in Canada and the US entailed a massive shift in production from civilian goods to military armaments, with governments assuming control over the coordination of production in an unprecedented fashion. The effort involved the establishment of whole new industries, such as fighter aircraft in Montreal and Toronto and synthetic chemicals in Sarnia, but there were grave concerns about the ability of the economy to transition back to a peacetime basis of production after the end of hostilities.
Leading economists in Canada and the US predicted the end of the war would be followed by a return to the Depression and a prolonged period of secular stagnation (negligible growth). In response to these fears, the federal government undertook a massive effort to plan for postwar reconstruction to convert the economy back to civilian production. The effort, led initially by an advisory committee of outside experts and then transferred to the Ministry of Reconstruction and Supply, involved a massive cross-government organizing effort as well as extensive coordination with the provinces through a series of Dominion-Provincial conferences on reconstruction that laid the basis for the postwar recovery. The success of these efforts paved the way for the growth of new industries in these sectors and Canada’s economic prosperity in the postwar era.
Major global trends that will impact post-pandemic planning
The lessons to be gleaned from our success in using the vast production capacity that had been built during the war to lay the basis for Canada’s postwar economic expansion can guide us in planning for a post-COVID recovery. The economy will slowly reopen as the threat of the pandemic recedes, but many of the changes that occurred during our lockdown will linger, including remote working and learning, as well as declining demand for conventional sources of energy.
The recovery will require a comprehensive planning effort that also takes account of the two broader trends altering the shape of the economy.
The first trend involves the growing digitization of all aspects of the economy, placing greater reliance on cloud computing, mobile telephony, data analytics and artificial intelligence. For the past two decades, the pace of innovation has been accelerating, dramatically compressing the time it takes to disrupt established industries and bring new products and processes to market. The impact of exponential growth has been accentuated by the shift to virtual work and learning during the pandemic. The pandemic has accelerated a new wave of digitization across virtually every aspect of our lives. These changes will persist into the recovery
The second trend is the accelerating shift away from carbon-based forms of energy to renewable forms, including wind, solar, battery electric, fuel cells and hydro power. This shift has been occurring for the past decade, with the cost of renewable energy and energy storage falling steadily and rapidly approaching the crossover point with natural gas.
In many jurisdictions, wind and solar energy is already cheaper than coal power. The trend away from carbon-based energy sources has been underlined by the steady stream of announcements from leading investment firms and sovereign wealth funds of their divestment from conventional fossil energy producers. Recent reports underline the vulnerability of existing oil and gas reserves, much of which may well end up as stranded assets. While some demand for carbon-based energy sources will return with a restoration of economic activity, the new normal of remote working and distance learning may well persist. Over the medium-term the adoption of virtual technologies to replace physical ones will reinforce the broader shift that is already underway to reduce the demand for these conventional energy sources.
Central and Western Canada’s interests aligned
The combined effects of digitization and decarbonization have the potential to accentuate regional tensions in Canada, but a comprehensive approach to reconstruction planning would allay these tensions. From Western Canada’s oil and gas economy to the traditional manufacturing sectors in Ontario centred on the automotive industry, early signs of this transition were apparent through falling capital investments in new energy projects and shutdowns or reduced shifts in traditional automotive plants. The move to renewable sources of energy and new forms of connected, autonomous, shared, and electric (CASE) transportation combines both trends – the digital and decarbonizing – into a new mobility paradigm.
The reality is that the regional interests of Western and Central Canada will be more aligned in terms of their response to this transition than they have been for many decades. Since the discovery of oil at Leduc, Alberta, in 1947 and the dramatic expansion of Central Canada’s manufacturing economy in the 1950s and 1960s, the prosperity of both regions has been tied to the fate of the carbon-based energy economy. The threats and opportunities created by these trends require a comprehensive planning approach that cuts across the conventional departmental boundaries within government and integrates initiatives at both the federal and provincial levels of jurisdiction. In this respect, the post-COVID planning effort must be comparable to the reconstruction planning efforts at the end of the Second World War.
To the growing clean energy sectors of the economy and the further expansion of the digital revolution underway for the past two decades, we need enhanced policies to support:
- the growth of domestic firms in the digital and cleantech sectors of the economy to accelerate the transformation of existing industrial processes to a more digitally enabled and sustainable basis;
- greater provision of renewable sources of energy, including, wind, solar and hydrogen;
- rethinking and redesign of urban mobility systems, including public transit;
- more attention focused on our public health system, through the effective use of digital technologies to track diseases;
- the application of new computing techniques to accelerate the discovery and development of new vaccines and antiviral drugs; and the use of these technologies to support and protect frontline workers in the health sector and other parts of the service economy.
The challenge is massive but many of the solutions are readily available in the form of existing technologies and the firms to develop them. The economy that emerges from the current lockdown, and the economic opportunities it presents, will differ significantly from the one that we have been accustomed to.
Planning for the reconstruction of the economy depends on our ability to recognize these trends and differentiate their longer-term effects from the short-term impact of the coronavirus. The current pause in economic and social life as we (used to) know it provides an opening to map the terrain of the current transition and chart a new economic path that takes full advantage of the emerging opportunities through digital technologies and sustainable energy.
Conventional policy processes are unlikely to produce the desired result; governments need to embrace a contemporary equivalent of the reconstruction planning process adopted towards the end of the Second World War. The lessons learned through that experience can serve us well in responding to the challenge of preparing for the transition to a post-pandemic economy and society. Now is the time for governments at all levels working collaboratively to design and implement the measures necessary to deploy our knowledge assets and technology resources to solve the emerging economic, health and energy challenges of the 21st century.
This article is part of the Building a More Inclusive Innovation Economy After the Pandemic special feature.
Balance of risk now more favourable for euro economy – ECB's Knot – TheChronicleHerald.ca
AMSTERDAM (Reuters) – The risk of a deeper economic euro zone recession than predicted in the European Central Bank’s (ECB) baseline scenario has diminished, ECB governing council member Klaas Knot said on Friday.
“Recent data solidifies the confidence in our baseline scenario with a more favourable balance of risks,” the Dutch central bank president said in a speech at a webinar hosted by Bloomberg.
The ECB last month said it expected the economy of the euro zone to shrink by 8.7% in 2020, followed by growth of 5.2% and 3.3% respectively in the next two years.
Knot said confidence in this outlook had been bolstered by recent data, which had been better than expected.
“Confidence indicators showed a strong rebound in June to close an otherwise disastrous second quarter,” he said. “Forward-looking confidence indicators already signalled a bottoming-out in May.”
To stimulate the recovery and to offset the surge in private savings brought on by the looming deep recession, governments should increase their spending, Knot said.
The Dutchman said he welcomed recent proposals for the European Recovery Fund, as they include important investments in digitalisation and Europe’s Green Deal.
“In these times of exceptional uncertainty, it would provide an important signal that we do not stop at only stabilising our economies, but also take the opportunity to address common longer-term challenges.”
EU governments have not yet managed to agree on the fund, as the Dutch lead a group of countries resisting the idea of it largely being made up of grants instead of loans.
(Reporting by Bart Meijer; Editing by Alex Richardson and Kevin Liffey)
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