The World Economic Forum's latest Chief Economists Outlook includes views of 40 chief economists on post-COVID-19 pandemic recovery. The focus is on pace and pattern (or direction and quality) of economic growth, which needs to be inclusive, sustainable and provides opportunities for all.
According to the report, the crisis has unraveled five specific outcomes:
- Too optimistic stock markets about the speed of recovery: Unemployment figures are a better indicator to global economic outlook than the upward swings in the financial markets.
- A unique moment to tackle inequality: COVID-19 pandemic has reinforced inequality as technological change and global integration have not been evenly distributed previously. It presents policymakers an opportunity to launch universal basic income, upgrade social protection measures and help to develop socio-economic mobility.
- Rethinking tax policy: Tax policy has a role in addressing inequality. Tax architectures need to curb tax evasion, set an international agreement to fairly tax digital activity, and rethink wealth taxes and higher marginal income taxes.
- Supply chain disruptions could hamper developing economies: The pandemic has exacerbated existing uncertainty caused by trade disputes and technology standards. Firms may take critical parts of supply chains to their home country or procure them from difference countries to boost resilience. High likelihood of a reversal of international economic convergence due to the transformation of supply chains. But then there could be higher investment in human capital in emerging markets as remote working gains popularity and they can competitively price their services.
- New growth markets could emerge with right action: Crisis will impact innovation that will affect long-term economic progress. New frontier markets that are emerging are green energy, healthcare, education, etc.
The report also identifies three broad emerging challenges during the recovery phase:
Retooling economic policy to reduce inequality and improve social mobility (pandemic is affecting jobs and income of the low-skilled workers, and wedge between high- and low-skilled workers is widening)
- Transforming tax architectures: reduce tax evasion, fairly tax activity generated in the digital economy, wealth tax, higher marginal income tax
- Supporting labor market transitions and social protection: wage subsidy, shorter working hours, social safety nets for those without long-term contracts, continuous retraining, upskilling and life-long learning, universal basic income
Identifying new sources of economic growth (innovation and global integration, the two important drivers of inclusive long-term economic progress, are impacted, R&D investment is declining, multinationals are repatriating parts of their value chains, trade finance is becoming harder to access for countries with weak institutions)
- Co-creating new frontier markets with active government support: green energy, ecotourism, circular economy, health, education, training, and care economy. Use of technology and market forces in these frontier markets could have transformative impact
- Finding new paths for economic development and global convergence: dwindling comparative advantage of low-wage countries in global value chains as companies can automate them and repatriate the work to their HQs – it puts severe pressure on East Asian growth model; mobile payments and digital transactions alone are not going to be far-reaching to serve as the foundation of a new long-term growth model; greater resilience in supply chains is needed perhaps through greater self-sufficiency or parallel supply chains; competitively priced services based on wage differences across countries; higher investment in human capital
Aligning on new targets for economic performance (a consistent set of targets is critical to create accountability and assess progress for both governments and firms; identify relevant business metrics of environmental, social and governance performance)
- Embedding stakeholder capitalism in business: embed greener and more inclusive growth in business model; pay attention to the well-being of employees, suppliers and customers; follow environmental, social and governance standards
- Building consensus on a new set of national economic policy targets: targeting GDP recovery alone will not be sufficient; update measures of GDP and include different dimensions of inequality; financial, physical, natural and social capital are important too; include the contribution of digital economy
