Speedy action needed for economic reform amidst COVID-19-OECD


Speedy action needed for economic reform amidst COVID-19-OECD

Global economic prospects subdued and uncertain at this time

Business reporter

Wednesday, April 01, 2020

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With the coronavirus (COVID-19) outbreak already bringing considerable suffering and major economic disruptions across the world, there is the view that only swift and decisive actions by governments and their nationals will help countries overcome the disease and its associated economic impacts.

Since the outbreak of the virus in January over some 400,000 people have been infected worldwide, subsequently pushing markets into decline, causing deteriorating global financial conditions, and hampering the prospects for growth.

The Organisation for Economic Co-operation and Development (OECD), in their latest interim report, describe the pandemic as the third and greatest economic, financial and social shock of this century – after the 9/11 attack and the global financial crisis of 2008.

“Stringent measures being applied, albeit essential to contain the virus, are thrusting our economies into an unprecedented 'deep freeze' state from which emergence will not be straightforward or automatic,” said Angel Gurria, secretary general of the OECD.

He noted that with the extraordinary uncertainty of the situation, it is becoming increasingly likely that there will be sequential declines in national, global and regional gross domestic product (GDP) for the current and next quarters of this year.

“Even if the COVID-19 effects fade gradually through 2020, as assumed, illustrative simulations suggest that global growth could be lowered by up to [a] half percentage point this year. Travel restrictions, and the cancellation of many planned visits, flights, business and leisure events are severely affecting many service sectors — this is likely to persist for some time. Global GDP growth is therefore projected to slow from 2.9 per cent last year to 2.4 per cent this year, before picking up to around 3 1/4 per cent in 2021 as the effects of the coronavirus fade and output gradually recovers.

“Macroeconomic policy stimulus in the most-exposed economies will help to restore confidence as the effects of the virus outbreak and supply-side disruptions fade. Low interest rates should help cushion demand, although the impact of recent and projected changes in policy interest rates on activity is likely to be modest in the advanced economies,” the OECD report outlined, also highlighting that while supportive macroeconomic policies can help to restore confidence, these may very well not be enough to offset the immediate disruptions that result from enforced shutdowns and travel restrictions.

Speaking at a special monetary policy press briefing on Thursday, Richard Byles, governor of the Bank of Jamaica (BOJ), noted that as a result of the decline in economic activity stemming from the ongoing impacts of the pandemic, there is an expectation that the economy will be further reduced for the upcoming quarters.

“If the domestic and external responses to the pandemic have to be sustained for most of next fiscal year, the Jamaican economy will contract significantly,” he stated, while noting that the central bank would also be expecting inflation to be at the lower end of the 4.0 per cent to 6.0 per cent range as prescribed.

“The near-term outlook now, however, reflects significant challenges and heightened uncertainty due to COVID-19. Our monetary policy measures, along with the Government's fiscal stimulus, are aimed at mitigating the impact of this pandemic on the economy and supporting a speedy recovery once the crisis has passed,” he further added.

Financial analyst and commentator Dennis Chung, weighing in on the matter of economic implications from COVID-19, said that time will be the most useful variable in determining how well we navigate and come out of this crisis.

“It depends on the time of how long the lockdown lasts – that is the critical thing that we need to understand. What we have here is a race against time. The reason we have the crisis is not because we don't have money in the system and there wasn't growth; the thing that's killing us now is uncertainty. If we knew that this thing [COVID-19] was going to be lasting for three weeks, we would know how to plan for it. What's killing us is this fear and uncertainty – which is why we need to get to that point of starting to restructure things in the economy and starting to bring back activity in order to get the fear out of it,” he said in a telephone interview with the Jamaica Observer.

Chung, in noting his endorsement of the Government's proactive response following the first confirmed case, also lobbied for stronger enforcement mechanisms as he believes that it is through the use of such that economic fallout will be short-lived as activities resume and authorities are better able to manage and contain the spread and transmission of the deadly virus.

He reasoned that insulation from the outside world is vital at this time in ensuring that we limit spread and become focused on dealing with our own local economic activities, ensuring that growth continues to take place.

“We have the capacity to do this but we have to get fiscal responsibility to drive that, for example further reducing the general consumption tax (GCT) rate on local goods and production so that people can be able to buy more local produce,” he opined.

Among other measures he proposed were the ramping up of the transport system, reducing the need for imports on motor vehicles, and providing renewable energy solutions to lessen oil imports.

“If we don't cut down on the foreign exchange needs then the Jamaican dollar will become depreciated and drive inflation,” he also told the Business Observer.

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