RecoveryPast Pandemics Show How Coronavirus Budgets Can Drive Faster Economic Recovery
There have been crises before the coronavirus crisis, but what is different is the scale of the current crisis. Ilan Noy writes that Economies everywhere are in freefall and unemployment is rising. Gross domestic product figures for the first quarter of 2020 show economic declines not seen since WWII. The challenge for governments is to manage both expectations and spending to drive recovery.
There have been crises before the coronavirus crisis, but what is different is the scale of the current crisis. Ilan Noy writes in The Conversation that Economies everywhere are in freefall and unemployment is rising. Gross domestic product figures for the first quarter of 2020 show economic declines not seen since WWII. The second quarter is predicted to be even worse.
He writes:
The challenge for governments is to manage both expectations and spending to drive recovery. Despite the fast-tracking of so-called “shovel-ready” construction projects, that does not necessarily mean infrastructural spending is a magic bullet.
The first is that the targeting of recovery funding is crucial. After previous shocks, when regions or cities failed to recover completely, it was usually because the recovery was under-resourced or funding was mis-targeted.
Unlike a natural disaster, the damage associated with COVID-19 is not to infrastructure. It is to employment in specific sectors such as tourism and culture. Policies should therefore target the maintenance of labour markets (even if it means sustaining them on life support) rather than spending on more infrastructure.
Secondly, recovery depends crucially on expectations. In those cases where the shock significantly increased the fear of future shocks, recovery was slower. Without assurances that we have “solved” COVID-19 – with a vaccine or effective control – a full recovery is going to be impossible.
