Pedestrians walk past the New York Stock Exchange in the United States
Daniel Acker | Bloomberg | Getty Images
The US economy is recovering from the Covid-19 recession, but some economic “scars” may take a long time to heal, said Thomas Barkin, chairman of the Federal Reserve Bank of Richmond.
Economic scarring refers to the damage left behind by crises that will suppress medium- or long-term growth prospects.
“I hope we are on the verge of completing this recovery,” Barkin said Monday at the Credit Suisse Asian Investment Conference, which is taking place this year.
“Vaccines are unfolding, case rates and hospitalizations are declining, excess savings and tax incentives should help fund accumulated demand from consumers exhausted from isolation and released from vaccines and warmer weather,” he added.
The US economy contracted by 3.5% in 2020 compared to a year ago, the Bureau of Economic Analysis estimated. The Organization for Economic Co-operation and Development (OECD) said earlier this month that the US economy is expected to grow by 6.5% this year and 4% next year.
Covid pandemic “scar”
The U.S. labor market took about a decade to recover from the global financial crisis, but is likely to suffer less long-term damage this time around, said Barkin, who is a voting member of the U.S. Federal Open Market Committee.
This is due to the fact that job losses in the US in the last year have been concentrated in sectors such as housekeeping and food services, where workers change jobs regularly and could therefore move on to jobs more quickly. similar to other industries, he explained.
In addition, an increase in distance working arrangements means that jobseekers could find new jobs elsewhere without moving, provided they have the right skills and a reliable internet connection, he said.
“Despite these positives, I’m still worried we’ll see scars,” Barkin added.
Barkin said many parents, especially mothers, quit their jobs to care for their children after schools and child care centers were closed to prevent the spread of Covid-19.
While there has been some recovery, the employment rate for parents remains about 6 percentage points below pre-pandemic levels, Barkin said.
“If parents who have left the workforce do not return, this will have negative long-term implications for the US’s growth potential,” he said.
Closing the school and moving to distance learning will also affect students without access to computers and a reliable internet connection – potentially causing “huge losses” in education and skill levels in the US labor market in the long run, Barkin said.
Other possible “scars” observed by the president of the Richmond Fed include:
- Small businesses have been hit hard by the pandemic, and a reduction in the number of such companies could cause the US economy to miss the “game-changing productivity gains” it often offers.
- Although there is no immediate debt crisis in the US, a “tremendous increase” in federal debt over the past year could diminish the ability of policy makers to respond to the next crisis.
To alleviate economic “scars,” policymakers should “complete the process of controlling the virus,” Barkin said.
“Scarring, whether it’s workers or businesses or communities, should be much smaller in a world that can return to normal or something that looks like the normal fast than one that people are still afraid to enter. in an elevator, “he said.
“The priority now is to distribute vaccines and reopen the economy safely. We are making good progress in this regard, “he added.