Analysis & Opinions

The Week in COVID-19 and Economic Diplomacy: 'Uneven Economic Response'

| July 16, 2020

Our weekly COVID-19 and Economic Diplomacy tracker looks at policies that impact the coordination of international governments and central banks, ongoing commentary and analysis, and asks what these turbulent times mean for economic diplomacy. 

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The Highlights

  • China has returned to growth, reporting a 3.2% increase in GDP in Q2, and avoiding a technical recession (two quarters of consecutive negative growth). Risks remain, including low consumer confidence and escalating tensions with the U.S. over Hong Kong.
  • Allowing unemployment insurance to expire would reduce GDP by 2.5% on average in the second half of the year, costing an average of 2 million jobs over the next year and raising the unemployment rate by up to 1.2 percentage points, according to expert Jason Furman. Experts argue that the U.S. must tie unemployment benefits to the unemployment rate while investing in job training to restore jobs.
  • The effects of the Covid-19 pandemic are disproportionate based on gender, race, and education. Women’s jobs are 1.8 times as likely to be cut in the recession than jobs held by men. In the U.S., the unemployment rate for Hispanic workers rose to 18.9 percent and hit 16.7% for Black workers. For those with only a high school diploma, unemployment rose 13.7 percentage points compared to 6.5 percentage points for those with a four-year college degree.
  • Europe begins negotiations for a €750 bn recovery fund, as France allocates an additional €100bn for recovery efforts and the UK’s watchdog estimates £60bn increase in taxes to finance the stimulus. 

Global Developments

The WHO conducts an internal audit on its response to the COVID-19 pandemic. With countries attempting to reopen their economies, some experts have begun exploring how to wind down fiscal policy which has allowed central banks to expand their role.

U.S. Developments

The Fed warns of potential market volatility while the largest three banks set aside $28bn for current and future loan losses. Many experts agree that unemployment benefits tied to the unemployment rate is vital for job restoration. 

European Developments

As Europe begins discussions over a €750 bn recovery fund, France and the UK announce plans to boost their economies and restore public finance stability. Spain seeks €80 bn from the fund while Dutch prime minister Mark Rutte argues against its creation.

Emerging Markets

  • China has returned to growth, reporting a 3.2 percent increase in GDP in Q2. However, a major risk is escalating tensions between the U.S. and China. Earlier this week President Trump signed legislation that requires sanctions against Chinese officials and entities materially contributing to the erosion of Hong Kong’s autonomy, and financial institutions doing business with those on the sanctioned list. 
  • As Brazil struggles to respond to the COVID-19 crisis, disinformation and fake news adds to the crisis. According to a non-profit group, 9 in every 10 Brazilins have been exposed to fake news; 7 in 10 believed the disinformation. Brazil’s Congress is putting forth legislation to combat disinformation, forcing social media groups to ban fake accounts and those controlled by malicious bots, keep a database of metadata, and ensure racist content is immediately deleted.
  • As Costa Rica seeks a $2.25bn IMF bailout to curb its debt, President Carlos Alvarado announced drastic spending cuts. The largest cut in Costa Rica’s history, it will amount to 1.3 percent of the country’s GDP. It will prove difficult for Alvardo’s budget to pass congressional approval. The larger problem, however, is the country’s aversion to revenue-raising measures.
  • Vladimir Putin has delayed his $360bn National Projects investment plan, as the Russian economy falls into recession. Putin’s primary domestic policy initiative, the national investment project aimed to lift living standards and drive GDP growth to exceed the global average by 2024. The six-year delay of the plan is the latest sign that the pandemic is wreaking havoc on the economy.
  • Central Asian countries have reintroduced lockdowns in response to a new surge in coronavirus cases. As the countries reopened, infections grew, placing enormous strain on the healthcare system and economic activity. The World Bank expects Kazakhstan's GDP to contract by 3 percent and Kyrgyzstan’s by 4 percent.

Odds and Ends

For more information on this publication: Belfer Communications Office
For Academic Citation: Suh, Hannah.“The Week in COVID-19 and Economic Diplomacy: 'Uneven Economic Response'.” , July 16, 2020.

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