SINGAPORE (May 29): This is not an easy time to be a policy maker anywhere. This is especially so in Singapore, which is much more exposed to the cruel twists and turns of the world economy than larger countries. Decisions with outsized impacts on the welfare of citizens as well as the survival of companies have to be made in the context of extreme uncertainty. As the Covid-19 pandemic reaches a new phase marked by continued uncertainty and where many countries are beginning to relax restrictions on economic activity, Singapore has to advance policy in two broad areas. One is a short-term approach that limits public health risks while allowing the economy to revive and the second is a longer term strategy of keeping Singapore going strong in the post-pandemic world that is already taking shape.

But as May turns to June, the pandemic is now moving into a new phase. While the public health crisis remains fraught, the worst appears to be over in most developed economies in terms of new infections and deaths caused by the pandemic. Some progress has also been reported in the development of treatments and drugs that reduce the seriousness of the illness induced by the virus. This should help to bring the death rate down while also alleviating the demand for scarce critical care equipment such as ventilators. There has even been some good news on the development of vaccines but we should be realistic and not expect it to be readily available for mass inoculation any time soon.

Countries across the world are beginning to ease the restrictions on activity that were imposed to control the spread of the disease. The pace of easing, however, varies greatly:

  • Countries and territories which have been more or less effective in suppressing the virus and even demonstrated the capacity to limit any second waves that appear, are moving to normalcy fairly quickly. These include China, Japan, South Korea, Taiwan, Hong Kong, Australia, New Zealand and a few European countries such as Iceland and several countries in eastern Europe. This is important because such countries account for roughly a quarter of world GDP.
  • Another category of countries have made good progress in containing the virus but not entirely are moving more cautiously — this includes Singapore, Malaysia, Thailand and most other continental European economies like Germany, Italy and France. This group makes up roughly a fifth of total global output.
  • A third category of countries, like the US and the UK, are relaxing restrictions on economic activity even though the spread of the virus and the daily death toll remains at worrying levels. Here, restrictions may ease but as the risk of becoming infected remains material, people are likely to be cautious about returning to normal working and spending — economic activity will resume but at a slower pace than the first two groups of countries. This group accounts for a quarter of global output.
  • There is also the final group of countries where the spread of the virus remains dangerously high. Even though some of these countries are shifting away from lockdowns, they remain in crisis with little prospect of a quick economic upturn. The net effect will be that the second quarter of this year should mark the worst of the crisis and a recovery should begin in the third quarter of the year. However, the policy responses have been massive and will soon begin to provide more support to these economies. Even larger stimulus efforts are imminent: For example, Japan proposes a further stimulus package worth JPY117 trillion ($1.53 trillion). When combined with the package announced in April, the total stimulus amounts to JPY234 trillion or a staggering 40% of GDP. Similarly, the US is likely to enact a fourth set of stimulus measures which should bring the quantum of policy support close to 20% of GDP. The Europeans are also edging closer to a compromise on yet another fund to promote economic growth. In China, comments made by the senior leaders at the recent National People’s Congress left little doubt that monetary, fiscal and supply side measures to boost growth will be expanded. The scale and speed with which stimulus measures have been enacted have not been seen before — and will soon have a substantial impact.

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