Factors to consider in our economic recovery
Find out more about the important factors to consider when countries are making their economic recovery from the COVID-19 pandemic.
The need for economic recovery
The COVID19 pandemic has led to the slowdown and even closure of many businesses, resulting in an economic downturn across almost all industries. With the outbreak effectively being contained in most countries, governments should start focusing on economic recovery to reduce the period and intensity of financial crisis. To have an effective economic recovery, there is a need to analyse the current problems which we are facing and come up with solutions to tackle them.
There are many factors which have to be taken into consideration for our economic recovery. In general, these factors span across several areas such as the current impact of COVID-19, restraints of the economy, constraints of policy implementation.
Size of multiplier
Economic recovery plans have to be made in consideration of the country’s multiplier size. The size of the multiplier affects the ability to achieve high economic growth and low unemployment. In Singapore, the propensity to save money is high, especially during this pandemic as many have become more careful with their expenditure. This results in a small multiplier which will reduce the effectiveness of demand-side policies implemented.
When drafting a plan for economic recovery, it is important for the government to not just consider the domestic situation but the export environment as well. The COVID19 pandemic created a global financial crisis where nearly all regions will suffer double-digit declines in trade volumes and world merchandise trade is set to plummet by between 13 to 32% in 2020. For export-driven countries like Singapore, Singapore’s economic recovery will have to be in line with the gradual re-opening of other countries. The establishment of trading partnerships will also be important as the coordination of financial, trade, public health and food security actions will help countries restart their economies sooner and drive global economic recovery. Thus, it is crucial that the export environment and inter-country relations be taken into consideration when making an economic recovery.
The level of market confidence is also an indicator of the economic recovery plan’s success rate. A consumer’s economic decision is dependent on their consumer confidence and during the COVID19 pandemic, consumer confidence has definitely decreased drastically following the contraction of the economy. Thus, it is important for economic recovery plans to increase consumer’s confidence in the market. Singapore is doing this through their various Budget schemes. For example,
The type of economic recovery plan implemented should also be dependent on people’s purchasing power. With many facing unemployment or a reduction in income, their purchasing power has decreased drastically. A high purchasing power plays an important role in economic recovery as consumption can help to fuel economic growth and increase GDP. Thus in Singapore, the government has implemented several policies to mitigate the citizen’s financial strains. For example the Fortitude Budget 2020 has a COVID-19 support grant where eligible Singaporeans and PRs who have lost their jobs or face reduced pay cuts can receive up to $800 per month for 3 months. This ensures that citizens can retain their purchasing power and have the ability to consume goods and services to stimulate the economy. Therefore to help the country recover from the economic downturn, policies and strategies need to be implemented to increase the purchasing power of citizens.
Key indicator of economic recovery
Upon analysing all the factors mentioned, it is evident that market confidence is a key indicator in determining whether the country can recover economically. Consumer spending which drives a large portion of the country’s economy, is determined by market confidence. Without sufficient consumer spending, policies and strategies implemented will be rendered ineffective as there is no stimulant for economic growth. Therefore, boosting market confidence should be the first and most crucial goal for many countries to recover from their economic downturn.
Despite the huge hit on the country’s economy because of the healthcare crisis, the economic downturn can be solved with the appropriate economic recovery plan. By taking into consideration these important factors, the plan implemented will be one that can boost economic activity and growth in the shortest period of time.