Spotlight: Econ Op-eds in Summary (Week ended 25th March'20)
1. COVID-19 The economic impact simplified
By: Anuda Weerasinghe
· Much of the crisis from the Covid-19 outbreak is from the human behaviour and economics at play. While prices wars and low demand pushed oil prices to record lows, it helped to mitigate the supply side impacts of the outbreak. Sri Lanka could also use these low oil prices to finance its budget deficit by keeping local fuel prices unchanged.
· Expectations of decreasing share prices, have led investors to move their money out of stock markets worldwide to safe-haven assets such as gold. Public expectations of scarcity due to COVID-19 has led to panic buying. Artificial shortages caused by the panic buying will only worsen the problem. Consumer confidence should be improved through clear communication between producers, governments and consumers.
· Sri Lanka remains vulnerable to a recession due to its heavy reliance on tourism, remittances and imports. While Covid-19 also suggests a possible global recession like in 2008, it is not guaranteed. Financial institutions today are stronger and well capitalised. Success of implemented fiscal and monetary policies and the control of the spread of the outbreak will determine the future global economic conditions.
2. Economic stimulus: Challenge for governments
By: Dinesh Weerakkody
· In addition to placing strain on healthcare systems, quarantine measures to contain contagion from the COVID-19 pandemic is affecting many sectors of the real economy. Governments have launched stimulus packages to ease the economic resulting economic burden, and prevent financial collapse. Central banks will need to take measures to stabilise bond and inter-bank loan markets.
· Governments face two challenges. First, measures to flatten the contagion curve come at the cost of a steepening recession curve. This will become a major concern once the number of new cases begin to drop. Second, economic stimulus will be ineffective if supply chains aren’t functioning well due to containment measures or fears of contagion.
· Further, most economic stimulus packages don’t address combatting the virus itself. In light of this, targeted short-term economic stimulus combined (such as supporting low-income-households) and spending on strengthening healthcare systems is important to flatten the curve while minimising long term economic fallout.
(Compiled by: Chayu Damsinghe, Asel Hettiarachchi & Eshan de Mel)
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