As responsive as governments have been over the last year and a half, they face substantial challenges to balance the urgent needs of citizens with long-term economic growth in the context of well managed public debt. Short-term, demand-side fixes to “put out the fires” are not enough. What’s needed are long-term investments and plans to unleash the economy’s full growth potential into the future. Starting now.
This means addressing longstanding structural weaknesses and sustaining the short-term COVID-19 rebound. It also means driving digital and green transformation, future-proofing against potential risks, and building new public service capability. It’s how the public sector can turn bold vision into meaningful action that allows people to thrive.
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Oxford Economics forecasts a robust global economic recovery with GDP growth at 5.9% and 4.8% in 2021 and 2022 respectively after a 3.5% contraction in 2020.
The global economy from crisis to recovery
Oxford Economics predicts that Australia, Singapore and the United States will have higher GDP growth between 2019 and 2025 compared to the United Kingdom, Germany and France.
Economic recovery is expected to be strong globally, but occur at different rates across countries
While job growth in Australia is strong, Oxford Economics predicts that job recovery across the United States, Eurozone and Singapore will be less strong than GDP recovery between 2019 and 2025.
Job recovery across most geographies is not expected to be as strong as GDP recovery
Competitiveness on the global stage
What governments do now to support economic recovery will influence how they compete on the world stage in the future. To fully unlock the upside potential and lead with impact, governments should quickly deploy several key policy levers:
Transform the labor market
How the labor market is managed as job protections end, jobs are reallocated to new growth sectors and people are supported with new skills.
Minimize economic scarring
How economic forecasts differ from before the pandemic to the current forecasts.
Encourage spending of excess savings
How excess savings built up during the pandemic will be unwound to supercharge a consumer boom.
All eyes on recovery
The pace and focus of recovery depends on how governments navigate long-term structural issues, competitive strengths and weaknesses, as well as short-term crisis impacts in their initiatives.
Long-term strengths and weaknesses. Existing strengths and weaknesses will shape countries’ recovery and should be at the heart of the development of economic recovery plans. These include competitiveness, digital technology, public administration and e-government, the environment, sector structure, labor markets and inequality, skills, and R&D and innovation.
Short-term crisis impacts. Upside risks have risen in recent months. There are growing hopes of a consumer boom as savings accumulated during the pandemic are unwound. However, concerns remain over coronavirus variants and potential market disruption from higher inflation
Rise to the occasion
To lay the foundation for future economic growth, governments should consider higher levels of public investment compared to the past, taking advantage of low borrowing costs, the general consensus supporting an activist fiscal policy and special funding and plans in place. These four fundamentals can contribute to greater returns.
01 Architect a dynamic fiscal strategy
Fiscal policy should be dynamically evolving and forward looking, rather than overly indexed on “how things have always been done.”
02 Think big and act bold in national initiatives
Governments need national initiatives aimed at raising potential economic growth and that serve as springboards to reshape the economy over time.
03 Target investments for maximum impact
Governments should allocate investment to lead with impact, emphasizing renewed public investment and taking full advantage of fiscal multipliers.
04 Boost capacity to execute successfully
There are a range of governance and administrative actions that governments can take to boost their capacity to absorb an funding influx and execute.
As countries around the world look to emerge stronger from the pandemic, governments have a challenge and a responsibility to lead with impact.