Reducing inequality and improving social mobility, identifying new forms of growth, and focusing on new measures of economic performance are among the biggest challenges facing the global economy as countries emerge from lockdown. Current unemployment figures are likely a better barometer of economic health than financial market valuations, and the deglobalization of supply chains may force emerging markets to reconsider growth models. These are some of the findings of the World Economic Forum’s Chief Economists Outlook.
The latest edition of the Forum’s Chief Economists Outlook is the outcome of consultations with leading chief economists from across the public and private sectors. The report outlines the current global economic outlook and lays out the priorities for a recovery agenda that is fair, inclusive and sustainable.
With much of the recent discourse focused on trying to predict whether the economic recovery will be V-shaped, U-shaped or L-shaped, it is increasingly clear that targeting a recovery in terms of GDP growth alone will not be enough to achieve the economic and societal transformation that is needed. Beyond GDP and its distribution, the report suggests that international convergence on a new dashboard of economic performance is needed that also targets different dimensions of national wealth as proxies for resilience and access to economic opportunity.
“Recent events have brought about a long overdue conversation about future growth. As we emerge from the crisis, the quality and direction of economic growth must take primacy over its speed. In this new paradigm, we need metrics beyond GDP and an updated policy toolkit to ensure that future growth is inclusive and sustainable, and provides opportunity for all,” said Saadia Zahidi, Managing Director, World Economic Forum.
The report argues that inequality, which the crisis has aggravated, must urgently be addressed through an adaptation of tax systems, building on pre-crisis efforts by the international community and national governments to reform tax architectures. Growing inequality had brought a number of tax instruments, such as wealth taxes and higher marginal income taxes, back into the public discourse. The pandemic provides an excellent opportunity to introduce far-reaching systemic change that will stop inequality from spiralling further out of control and focus on measures that enhance social mobility.
With soaring debt-to-GDP ratios, governments have difficult decisions to make on how these debts will be paid off and by whom, given the deeply uneven spread of the pandemic’s impact. Correctly calibrating this burden-sharing presents a tremendous opportunity for governments to regain the trust of citizens, many of whom have seen their chances of advancing economically dwindle for many years.
Chief economists expect the crisis to affect two important drivers of inclusive long-term economic progress: innovation and global integration. The economic contraction will impact levels of investment into R&D at a time when it’s needed more than ever to tackle climate change and expand opportunity for all. As multinational companies may deglobalize and repatriate parts of their value chain, the crisis could result in long-term damage to ties between high- and low-income countries.
Given the scale of the crisis, governments need to go beyond the typical toolbox of interventions to reshape entire sectors and co-create new markets, both as regulators and investors. These new frontier markets range from green energy, ecotourism and the circular economy, to health, education, training and the care economy. Views are sharply divided, however, over the role of governments in the innovation process. On structural change within economies, the chief economists think government support in the current phase of the crisis should be targeted more towards the growth sectors of the future rather than protecting all jobs.
The report also examines the stark contrast between real economic indicators and US equity market expectations for the medium-term outlook. The optimism of markets seems to be based on positive data on retail sales and industrial production, an expectation that the health crisis will be contained in 2020, and the extraordinary monetary stimulus being provided by central banks. However, this optimism may be built on shaky ground if the pandemic drags on and earnings are secured by reductions in workforces and investments, which could lead to reduced employment, innovation and consumer spending in 2021.