Pole shift may still happen. It is just going to be financial.
By gabrielle jones: political columnist
It is true to say that we are not facing an economic recession of the kilter that we witnessed in 2008. So far, there has not been the sharp and sustained economic decline that characterised the 2008 financial crash.
Although the UK did record its worst recession on record in the first financial quarters of 2020, the next quarter boasted the fastest three month growth ever recorded and this trend was echoed across other major European economies.
These figures have prompted cautious optimism from economists and business owners alike, bolstered by the news of the vaccine, there is a popular theory that the economy has been put into a ‘deep freeze’. This data could also be a sign that once Covid restrictions are lifted the economy will ‘bounce back’, and the economic damage done by the pandemic will, hopefully, be contained.
However, these periods of seemingly rapid economic growth could be more comparable to the tide drawing back before the tidal wave reaches the shore.
This growth merely represents an economy closing down and then re-opening. The reality is that the UK economy is still 9.7% smaller than it was pre-pandemic, this overall recession has happened in other major world economies such as the U.S, Japan, Canada, and Brazil, with many European economies also joining this roster.
The human impact of this is hundreds of thousands of jobs lost, a significant part of the UK population still on furlough, and the collapsing of struggling industries such as travel, retail, and hospitality – all vital to the UK economy.
In a recession, governments often spend more to encourage consumer spending, but the longer that people have to stay inside to protect themselves and others, consumer spending becomes less likely to be the saving grace of the crisis.
Speaking to the New York times, economist Marie Owens Thomsen stated that if this happens then the nature of the crisis shifts from temporary to longer-lasting. We will see the destruction of productive capacity, meaning that economies will shrink and may even have to be restructured in the wake of failing industries.
Here, there are not only a few problem industries in trouble, the whole audience is involved. The developing world is already feeling the burden of the economic crisis as international investment evacuated when the pandemic hit in early 2020, while more developed economies have managed to cushion the blow for now with stimulus packages. Either way, this crisis is truly global.
Economists had for years advanced the theory that globalisation is a deterrent to economic crises; if some economies are in recession there need be only a few thriving to equipoise the global markets. China is the only major global economy that has recorded an overall growth of 2%, nowhere near sizable enough to counterbalance the weight of recession.
Speaking to the Guardian, Harvard Economist Kevin Rogoff put it plainly; ‘If Chinese manufacturing does come back, who exactly are they selling to?’.
So it appears that there is no obvious mechanism to prevent this looming global crisis, but there are signs that governments are preparing for an economic crisis of historical proportions.
The UK government announced the largest defence spending bill since the Cold War.The enormous £16bn will be used to invest in all sectors of the armed forces, including space programmes and artificial intelligence.
At first glance this monumental investment seems unnecessary, why pour money into defence during a national health and economic crisis?
Reading between the lines, this investment can be seen as an ambitious attempt at economic restructuring. Johnson claims that this will create ‘hundreds of thousands’ of new jobs throughout the UK, hopefully filling the gap of industries that will be inevitably weakened by the pandemic.
An equally long lasting change could be in the way that we consume. The anxiety of living through a global pandemic and future uncertainties could encourage people to hold on to their money while they have it. Saving rather than spending could deal another blow to the consumer economy.
Furthermore, public consciousness has been raised to the fragility of our lives and the life of our planet. More than ever people are shopping ethically and locally, and there has been a noticeable turn away from celebrity culture, flashy displays of wealth, and mass consumption. Could this be the emergence of a new type of consumerism? Possibly one less inclined to ‘consume’ than before.
Still cushioned by stimulus packages and furlough schemes, it is tempting to give in to the illusion that the economic hit, although bad, is not as bad as expected. The reality is, we are only standing on the precipice of the crisis. After all does a larger ship, when spinning out of control, only take longer to crash into the harbour wall?
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