Economy
Coronavirus support packages will reshape the future economy, and that presents an opportunity – The Conversation AU
Governments across the world have rolled out extensive financial packages to support individuals, businesses and large corporations affected by the COVID-19 pandemic.
Equally, central banks have decreased their lending rates to almost zero, and have announced extensive and previously untested direct lending to private corporations and financial companies.
In many wealthy countries, the support packages are record-breaking in their size and scope, such as the US$2.2 trillion stimulus package for the US economy.
The US and Australian stimulus packages each represent about 10% of GDP. New Zealand’s program is about 5% of GDP, but each country is experiencing the economic shock differently, has different existing safety nets and priorities, and different mechanisms to deliver this assistance.
These support packages will play a significant role in shaping our world for many years, and we should not allow the clear emergency of the situation to stop us questioning their design.
Goals for financial support
Our work on economic recovery following natural hazards and disasters defines a set of build-back-better goals, and how they should be assessed.
This kind of thinking applies equally to our current predicament. We argue that globally, the purpose of COVID-19 stimulus packages should be threefold, and we should assess them against these three goals:
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make sure people’s basic needs are satisfied
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make it possible for the economy to spring back into action once the necessary social distancing measures are relaxed
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use these funds to create positive change, and rebuild areas we previously neglected (in many countries, this will mean investing in public health systems).
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To achieve the first goal of making sure people can meet their basic needs, many high-income countries – including the US, Greece, the UK and France – are either providing direct payments to all citizens (as in the US) or targeted support to those who lost income or jobs.
These payments are sometimes a fixed proportion of each recipient’s previous income, up to a cap (as in the UK), or are identical for everyone who has lost income (as in New Zealand).
From an economic perspective, it is clearly more efficient to provide support only to the people who really need it – those who have lost income and would not be able to support themselves and their dependants.
But these programs are also shaped by politics and ethics, and different countries chose different ways to distribute this assistance, not always based on need.
Restarting economies
Even better are programs that provide the wage subsidies through existing employers, such as Germany’s famed Kurzarbeit program (which translates to “work with shorter hours”) which was implemented during the 2008 global financial crisis.
New Zealand’s wage subsidy package is a similar program. It supports businesses to continue paying their staff even if they are unable to work.
Details of payments to businesses are posted online, to make sure employers comply and transfer these funds to their employees. This initiative was trialled after the 2011 Christchurch earthquake.
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A similar support was also implemented in Australia.
Generally, wage subsidies allow for continued employment of individuals who would otherwise be let go, and they will also assist in achieving the second goal of resuming economic activity once restrictions are relaxed.
Such programs have been shown to be effective in Germany and New Zealand in ameliorating unexpected shocks.
While employees need support, directly or indirectly, it is also important that small and medium-sized businesses are propped up so they are ready to forge ahead once it is possible to do so. They should receive grants and subsidised loans to pay their costs, other than wages. Otherwise many businesses will fail, and the recovery will be slow and hard.
Global impacts
Whether large corporations need to receive support depends partly on the longer-term importance of their sector. It is easier to justify support for national airlines, which are an important linchpin in many countries’ global ties, than to support fossil fuel producers, for example.
Nor are there many reasons why taxpayers (present and future) should bail out wealthy individual owners of large businesses, when these businesses could be restructured in bankruptcy proceedings that should not lead to their shutdown.
But the COVID-19 pandemic has impacts well beyond individual countries and their economies and may require global support mechanisms.
Most low- and middle-income countries have either not yet announced any assistance or their packages are less than 1% of GDP. They typically cannot afford more with their existing debt levels.
It is therefore incumbent on high-income countries that can afford larger fiscal support packages to help countries that cannot. But so far only a handful of high-income countries, including Finland and Norway, have provided such support.
The international institutions supported by the rich world, such as the International Monetary Fund (IMF) and the World Bank, should pull out all the stops and lend enough, and at concessionary rates, to low-income countries so they can, at the very least, provide for their people’s basic needs.
Without that support, the virus will continue to spread in low-income countries and defeat the draconian social distancing measures that almost every country is implementing now.
Finally, it is important that we scrutinise these programs carefully now, rather than only once the public health emergency has passed and they have been entrenched. The sums involved are incredibly large and we will be remiss if we mis-spend what we are now borrowing from our children and grandchildren.
* Stay in touch with The Conversation’s coverage from New Zealand experts by signing up for our weekly newsletter – delivered to you each Wednesday morning.
(Bloomberg) — German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.
An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.
“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.
There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.
Even so, the start of the year “didn’t go great,” according to Fuest.
“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”
Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.
“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”
Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with more comments from Fuest starting in sixth paragraph.)
©2024 Bloomberg L.P.
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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.
Officially, Apple does not sell its products in Russia.
The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.
But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.
Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.
Zoya bought the watch without a moment’s delay.
The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.
“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.
“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”
Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.
But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.
Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.
The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.
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