Coronavirus recovery: why ‘build back better, but together’ is key to global growth

Our global response would be much more effective if world policymakers could work in closer harmony to get the best out of the recovery
Trade differences must be settled, inflation concerns set aside and monetary policies harmonised to ensure mutually assured recovery for all

David Brown

Published: 5:45am, 13 Apr 2021

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With the worst of the Covid-19 pandemic receding, the world is entering a new phase of recovery. This fact is not being missed by the world’s financial markets, seeing early shoots of recovery as a good excuse to push equities to new heights. The global economy is turning the corner, growth is bouncing back and job creation is on the mend.

There is a big backlog of pent-up demand with consumer spending and business investment making up for lost time. Governments and central banks around the world now need to ensure the policy spigots are kept wide open to guarantee that progress is maintained.

It would be much more effective if world policymakers could work in closer harmony to get the best out of the recovery. Close policy coordination worked well in the wake of the 2008 financial crisis as the major nations pulled together to wrest the global economy from deep recession, and they can do it again. A New Deal of global spending and investment measures would definitely be an advantage.

Thankfully, multilateralism is on the mend. It might have withered under former US president Donald Trump’s inward-leaning policies, but multinationalism has a good chance of flourishing again under US President Joe Biden’s vision of a world working together and building bridges for a better future. There is a lot of work to be done.

In the past four years, the prestige of many supranational institutions has suffered. They could do with a major reboot to restore confidence to help rebuild hope for sustainable global GDP growth averaging above 4 per cent in the longer term.

The International Monetary Fund, World Bank, United Nations, World Health Organization, World Trade Organization, and Organisation for Economic Cooperation and Development, among many other major bastions of international cooperation, are all crying out for more resources to spearhead faster global recovery.

If the past four years have shown the world anything, it is that isolationist policies are bad for growth. Trump’s policy of going head-to-head with Beijing culminated in the US-China trade war and world growth prospects being badly affected. Trade barriers rose, global trade suffered, growth faltered and jobs were lost.

Contrast that with the phenomenal speed at which the world’s health authorities coordinated efforts to come up with effective coronavirus vaccines within a short space of time.

The faster return to more normal life should help lift global growth to 5.5 per cent this year while raising world trade growth to 8.1 per cent, according to IMF forecasts. It shows what positive results can be achieved by the world working together towards a common goal.

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The world needs a much better road map for recovery, not just for the wealthy industrial nations but also for the less-well-off economies.

A much wider international consensus will be needed. Globally coordinated reflation efforts worked well in the wake of the 2008 crash as the Group of 20 major economies agreed a deal to boost the world economy with measures worth up to US$1 trillion.

In a show of solidarity at the height of the Covid-19 crisis in March last year, leaders of the G20 countries pledged to inject more than US$5 trillion into the global economy to help beat the pandemic.

It marked an important turning point, but only concerted global leadership can make it succeed. The US and China both have a valuable opportunity to step in and give much-needed guidance.

Biden certainly seems to be setting the bar high with the new fiscal initiatives which are reminiscent of Franklin Roosevelt’s 1930s New Deal designed to counter the Great Depression.

Biden has already committed US$1.9 trillion towards pandemic recovery and has plans for an extra US$2.3 trillion of infrastructure spending and job creation measures which could set the US on a trajectory of stellar growth.

Beijing’s “dual circulation” strategy for the economy could also come into its own, prioritising domestic-led recovery but with more positive spin-offs for external trading partners. If successful, it could swiftly end trade frictions with the US.

Trade differences must be settled, inflation concerns set aside, the return to fiscal austerity delayed and monetary policies harmonised to ensure global easing is maintained in the wake of the pandemic.

“Build back better, but together” should be the hallmark of success. Mutually assured recovery is the best way forward.

David Brown is the chief executive of New View Economics