Economic Recovery and inequality in 2021

Uri Dadush from the European “think tank” @Bruegel_org, reviews the evolution of the global economy during 2020, and the outlook for 2021, both years dominated by the covid-19 pandemic. In his view “the economic recovery is underway” and the biggest challenge facing the post-pandemic world won´t be “a decline in efficiency or a debt overhang” but how to deal with higher levels of inequality going forward, bearing in mind that “high inequality is not only a consequence of the pandemic but has been a major cause of its severity”.

• The author considers that the role of the “massive fiscal support and the expansionary monetary policies taken by governments and central banks have been key to explain the evolution of the economy in 2020 assuring financial stability and making possible a subsequent economic recovery which, thanks to the arrival of vaccines, “appears likely to exceed the expectations of just a few months ago”.
• He also highlights some economic legacies of the covid-19 such as the higher government debt levels, the lower long-term productivity growth, or the impact in the weakest SMEs that will disappear under the new post-crisis business models…
• All of them will become economic challenges in a post pandemic world, however in his view the biggest challenge will be how to deal with higher levels of inequality going forward as this crisis “has also raised fundamental questions about the sustainability of social models based on extreme inequality”.
• According to him, “inequality is both a consequence of the pandemic and a cause of its severity” which would explain why “Latin America has the world’s highest income inequality, and is also the continent where the economic fallout from covid-19 is most severe and the health crisis is direst”, or why the inequality in the United States, especially in the access to healthcare services, makes that this country has one of the highest covid-19 fatality rate , which is much higher between black and Latino minorities.
• Unfortunately he is skeptical about the ability to reduce these higher levels of inequality as “dealing with inequality will require a comprehensive overhaul of growth and social policies”, something which is not evident in the near future.