It’s time to think different about your Contracting and Financial workflow...

What’s happening in economics? Here are the latest news and trends from around the world based on the weekly update of Deloitte.

ECB worries about debt while the EU moves toward integration

In its latest Financial Stability Review, the European Central Bank (ECB) expressed concern about the rise of debt all across the member states, with special regards to Italy and Greece.

Naturally, the debt-to-GDP ratio will decline once economies start to grow. Still, early indications suggest a slow return to normal. This comes, in part, from the propensity of European consumers to save an unusually large share of their income.

Meanwhile, amidst concern about the sovereign debt of EU members, the EU itself is moving toward fiscal integration – photo: forbes.com

In fact, the European Commission estimates that the household savings rate will rise from 12.8% in 2019 to 19% this year.

Meanwhile, amidst concern about the sovereign debt of EU members, the EU itself is moving toward fiscal integration.

In mid-May, Germany and France proposed a EUR 500 billion EU Recovery Fund to support troubled countries in their fight against COVID-19 by way of grants. Then at the end of May, European Commission President Ursula von der Leyen proposed to go even further than the Franco-German plan. She wants the EU to borrow EUR750 billion to assist member countries in dealing with the crisis, partly in the form of grants and partly by way of loans. According to the Deloitte’s report, Ursula von der Leyen also vetted the idea of having the EU impose its own taxes (i.e. tapping into the carbon trading system and possibly taxing other areas of environmental degradation) in order to service the debts.

While the ultimate impact of this extra expenditure is difficult to measure, if it goes forward, this scheme may represent a significant shift in the architecture of the EU, moving toward integration, which raises a number of questions.

In the US, personal income soars, consumer spending plummets

Something very unusual and interesting happened in April in the United States. Eventhough wage income fell 8.0% from March to April, total personal income could increase 10.5% thanks to the massive transfer of funds from the government to households in the form of one-off transfers as well as enhanced unemployment insurance. However, consumer spending fell 13.6% from March to April, thus personal savings could increase significantly.

In fact, Americans saved a third of their income in April. Deloitte’s experts forecast a substantial decline in GDP for the second quarter, as well.

Consumer spending fell 13.6% from March to April in the US – photo: insperity.com

Productivity in the post-COVID era

Craig Alexander, Chief Economist of Deloitte Canada explains that his key concern is a potential slowdown in labour productivity, stemming from remote work and physical distancing.

However, he reminds us to count with the possibility of some very large long-term productivity gains, if the opportunities are realized.

Among these he mentions first the structural changes started prior to the pandemic, i.e. the aging of the labour force, the rising importance of immigration to economic growth, and policies aimed at addressing climate change.

Second, some of the existing trends have been accelerated by COVID-19, like the shift toward digital adoption and consumption, and the deployment of artificial intelligence (AI) and use of Big Data.

Third, the pandemic has also created new trends that did not exist before, including changes in consumer behavior around health and trust.

These transformative forces are likely to lead to many business failures during the current recession and its aftermath. However, the closure of certain businesses will enable the opportunity to create new firms during the recovery and subsequent expansion.

And these new firms will be positioned to thrive in the new post-COVID environment that will be more digital, more automated, more informed by AI, and employ more flexible workers. This would make the economy more flexible, productive, and competitive at the end.

 

We use cookies 🍪 to provide the best experience. By clicking “Accept”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. For more information on cookies and your options see our Cookie & Privacy Policy.