“Economic forecasting is rarely easy. This is especially true in the current environment, as the relationship between economic activity and public health metrics such as the percentage of people vaccinated, or the number of COVID cases, remains far from predictable. 

Key macroeconomic questions remain. Is higher inflation likely to persist, or will it prove transitory? Will businesses be able to boost productivity despite the tight labor market, and supply chain disruptions? And what are some of the most useful metrics to assess economic recovery in the current environment? 

This week on EconoFact Chats, Julia Coronado discusses these questions, and offers her perspective on which metrics best indicate the health of the economy.”

To know more click here.

OECD’s latest report, Pensions at a Glance (2021), discusses in detail the financial pressures arising out of rapidly ageing global populations. Although life expectancy gains in old age have slowed since 2010, the pace of ageing is projected to be fast over the next two decades. The size of the working-age population is projected to fall by more than one‑quarter by 2060 in most Southern, Central and Eastern European countries as well as in Japan and Korea.

Pension finances deteriorated during the pandemic due to lost contributions, and shortfalls have been mainly covered by state budgets. The report emphasizes the fact that the biggest long-term challenge for pensions continues to be providing financially and socially sustainable pensions in the future. Many countries have introduced automatic adjustment mechanisms (AAM- adjusting retirement ages, benefit levels and contribution rates and using an automatic balancing mechanism) in their pension systems that change pension system parameters, such as pension ages, benefits or contribution rates when demographic, economic or financial indicators change. Putting pensions systems on a solid footing for the future will require painful policy decisions.

Click here to read the full report.

The recent McKinsey American Opportunity Survey (2021) highlights interesting observations about American beliefs on the availability of economic opportunity, obstacles, and the path ahead to create a more inclusive economy. A sample of 25,109 adults aged 18 and older from the continental United States, Alaska, and Hawaii was interviewed online in English and Spanish. Excerpts from the report’s findings:

“Americans report that their financial situations have deteriorated over the past year, and at the time of our survey, only half of all respondents reported being able to cover their living expenses for more than two months in the event of job loss. Americans reported facing numerous barriers to economic opportunity and inclusion—among them, inadequate access to health insurance and physical and mental healthcare, as well as to affordable childcare. Moreover, many respondents said that they feel their very identity limits their access to jobs and to fair recognition and reward for their work.

Yet amid the challenges, our survey also revealed optimism. First- and second-generation immigrant respondents were among the most optimistic respondents about economic opportunity. Black and Hispanic/Latino respondents were also among the most optimistic respondents, despite being more likely to report barriers to opportunity.”

Click here to read the full report.

From MacroPolo:

“With China’s Evergrande moving into what appears to be a managed default process, as we had previously anticipated, it’s time to look at the future of the property sector. Even without the Evergrande crisis, the property sector is bound to see a correction. The crisis simply made the writing on the wall clearer. Such a correction means that China’s notoriously outsized investment-driven model will have to be “right-sized.”

The right-sizing of investment, which mainly refers to fixed-capital formation that makes up about 43% of GDP, will inevitably hurt growth (see Figure 1). Getting a handle on the magnitude of the growth impact, therefore, will be key to any analysis of China’s economic future. To do so requires examining construction-related investment, which is composed mainly of private property investment and local government investment (including public housing and infrastructure).

Our baseline scenario assumes a 30% decline in private property construction through 2025. In total construction volume terms, that means a correction from 100 million units to roughly 70 million units. Such a correction will lead to annual property sales falling from 15% to 10% of GDP by 2025, which is basically the same level as in 2010. In other words, China intends to roll back the decade of rapid property sector growth in the next five years.

As a result, local government investment, which is basically public spending on infrastructure that depends largely on land revenue derived from private property investment, will likely decline by 3% of GDP over the same period. Combined with the property correction, we expect overall construction investment to be down by 6% of GDP.”

In the latest blog for The Conversable Economist, author Timothy Taylor examines the merits of the statement whether the US needs a sound industrial policy to fuel economic growth like its counterparts like China or not. While the modern version of this argument states that the US needs to subsidize key industries to counterbalance China’s growing economic influence in the world, he also discusses the historical context to this backed by strong macroeconomic fundamentals. The author quotes excerpts from a report by the Peterson Institute of International Affairs:

“The World Bank’s acclaimed volume, East Asian Miracle: Economic Growth and Public Policy (Birdsall et al. 1993), while acknowledging industrial policies, emphasized sound macroeconomic policies (later labeled the “Washington Consensus”), together with superior education and land reform, as drivers of remarkable growth in Hong Kong, Japan, South Korea, Singapore, and Taiwan. A decade earlier, Chalmers Johnson (1982) had published MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975, giving outsized credit for Japan’s spectacular postwar economic growth to government support for specific firms and industries. These two volumes set the stage for prolonged debate, still underway, on the role of industrial policy in East Asian economic prosperity. Numerous academic articles and books have dissected contributing factors. This brief section merely skims the surface of a substantial literature.”

Click here to read the full blog.