The economic legacy of Sydney’s Olympics is still taking shape


The taxpayer-funded construction of venues and infrastructure did fuel a growth spurt in Sydney. Estimates by economist Terry Rawnsley show the city’s economy grew at a super-strong rate close to 5 per cent in the two years before the games. But a nasty hangover followed. Sydney’s annual growth rate fell sharply after 2000 and remained subdued for some years, although many factor contributed to the slowdown.

But investments on the scale of those made to host the Olympics have effects that play out over many decades. With 20 years of hindsight it’s apparent hosting the games has delivered some important long-term economic benefits.

The Sydney Olympics were staged in the middle of a historic phase of globalisation which took off around 1990 and lasted until the global financial crisis in 2009. A striking feature of that period was the emergence of highly connected, internationally-oriented cities which thrived amid the rapid growth in trade. Those “global cities” have become the command posts of the international economy.

For a middle power city like Sydney, hosting the games in 2000 was ideal. It helped frame Sydney as a big-league city at a moment of rapid global integration.

The games were a well-timed global advertisement for Sydney’s capabilities. The way the event was staged – with efficiency, safety and gusto – was positive for investor confidence in Sydney (and Australia) and helpful to our export industries.

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The games took place just as lucrative new tourism markets were opening up in emerging Asian economies, especially China. The event was also staged on the cusp of a boom in international education, a sector which has grown rapidly in Sydney during the past two decades.

“Having all those images shown on TV globally of such a successful event, in a city that’s nice to be in, served us well and certainly helped our exporters,” says AMP’s chief economist, Shane Oliver. “It showcased Australia’s talent.”

Perhaps even more valuable is the way the Olympics transformed the geographical heart of Greater Sydney.

It’s easy to forget much of what we now call Sydney Olympic Park was a toxic waste dump prior to the games. Contaminants at Homebush Bay, as it was known, included petroleum waste, unexploded ordnance, chemical waste, power station ash, gasworks waste, asbestos, industrial hydrocarbons demolition rubble and domestic garbage.

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The Olympics provided the justification of a much-needed clean-up. Between 1992 and 2000 the NSW government spent more than $130 million to remediate pollution spread across 400 hectares.

Without the games, it’s difficult to imagine a government committing the resources for such a comprehensive renewal.

“If the Olympics hadn’t come along Sydney might still have a giant waste dump taking up hundreds of hectares of prime land in the heart of the city,” says Terry Rawnsley who is an expert in regional economics.

“That’s the counterfactual universe in which Beijing got the nod for the 2000 Olympics and Sydney never hosted the games.”

The Homebush Bay clean-up greatly improved the amenity of western Sydney and the economic dividends flowing from that makeover are substantial.

Olympics-related remediation work paved the way for the transformation of adjacent suburbs, especially Rhodes, and the creation of the new ones at Wentworth Point and Newington. The extensive green spaces established at Sydney Olympic Park also facilitated high-density residential development in the vicinity, adding to Sydney’s supply of well-located housing.

The post-games planning of the Olympic precinct has come in for some justifiable criticism, especially its empty feel and lack of vibrant urban spaces.

Even so, Sydney Olympic Park has emerged as an important commercial hub.

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The output of the Homebush Bay-Silverwater statistical area (which is made up largely of Sydney Olympic Park) reached $5.54 billion in 2018-19, according to Geospatial Economic Modelling by the consultancy PWC. That makes it the eighth largest local economy in NSW and bigger than some long-established commercial hubs including Chatswood-Artarmon and Mascot.

Last year, Sydney Olympic Park Authority had more than 4000 residents and its venues, businesses and institutions hosted almost 20,000 workers and 2000 students. Around 10 million people now visit the area for business or leisure each year, more than double the number that attended the 2000 Olympic and Paralympic Games.

The economic output of the suburb will grow considerably once it is connected to both the CBD and Parramatta by the West Metro rail project due for completion around 2030.

The economic legacy of Sydney’s Olympics is still taking shape.

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JobSeeker, JobKeeper changes on September 28 may cause economic collapse


In the dark days of late March, the situation was dire for many Australians. Lines were out the door and around the block at Centrelink offices across the nation and there were predictions that as many as 3.4 million people faced the prospect of becoming unemployed in the coming months.

As a result of the severity of the challenges facing the economy, the Morrison government instituted an unparalleled level of support for households and businesses. The JobKeeper program was introduced providing $750 per employee per week, to any business that could prove a large reduction in overall turnover, with different criteria for small and large businesses to qualify.

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According to Treasury estimates, in the following months, over 900,000 businesses and more than 3.5 million workers were supported by the JobKeeper program. The JobSeeker coronavirus supplement was also introduced, effectively doubling or more fortnightly unemployment payments for recipients.

At a cost of $70 billion over six months, the JobKeeper program has provided over $2.6 billion in wage subsidies each week to qualifying businesses. In fact, JobKeeper ended up providing so much extra cash to businesses, that company profits for the June quarter jumped 15 per cent. This occurred despite the fact that the June quarter was the height of the various lockdowns and restrictions across the nation.

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But in the coming weeks, this enormous level of government assistance will begin to come to an end. In eight days the scaffold of support for businesses provided by JobKeeper will start to be gradually removed.

This will mean hundreds of thousands of businesses are forced to stand on their own two feet for the first time in six months and approximately 1.3 million workers will lose access to support from the JobKeeper program.

According to a survey of businesses performed by research firm Digital Finance Analytics (DFA), small and medium business owners are quite guarded about their prospects going forward. With around one in four of those surveyed stating, that given the circumstances, they did not expect to be trading in six months’ time.

“SME’s (small and medium enterprises) are facing challenging conditions across the country. But some states are suffering more than others,” said DFA principal, Martin North.

The ACT is performing quite well due to the support provided by the public sector in Canberra. But businesses in Victoria, and particularly Melbourne are suffering badly as a result of the second round of lockdown.”

In Victoria, almost 35 per cent of businesses surveyed stated they did not expect to be trading in six months’ time, compared with a national average of 25 per cent.

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The challenges faced by businesses vary widely between different industries. In the transport and warehousing sector, businesses are faring relatively well, with less than 10 per cent saying they do not expect to in business in six months.

In other industries however, things are far more severe. With well over half of businesses in arts and recreation saying they’d didn’t expect to be around in six months. Half of businesses in education and training and accommodation and food services also predicted a grim future.

A recent analysis of employment by consulting firm Taylor Fry suggests that their concern is very much warranted.

Their analysis showed that Aussie small businesses (those employing fewer than 20 staff) had lost 8 per cent of jobs, with medium businesses (those employing 20 to 200 staff) had lost 7.2 per cent of jobs since the beginning of the pandemic.

Victorian businesses are doing it particularly tough, with the data from DFA, Taylor Fry’s analyses also showed that small and medium businesses in the state recording a huge 12.6 per cent drop in employment.

With the DFA survey covering various demographics from locale to industry, North shared that he was particularly concerned for the future of Melbourne’s CBD, stating “it may become something of a wasteland” with so many businesses at risk closing their doors for good.

According to North, the key turning point for Victorian businesses was the reimplementation of the second lockdown.

“Up until the lockdown was reintroduced in Victoria, things were looking pretty similar across the various states and territories. But since then, businesses have been decimated by a second round of forced closures due to the virus,” said North.

“The issues in Melbourne have become more systemic, with many businesses in key supply chains at risk.”

Given small and medium businesses employing approximately 68.3 per cent of workers, the potential closure of so many businesses could be a devastating blow to an already struggling economy.

When asked how many businesses would end up closing their doors for good, North replied.

“With all the variables, it’s hard to predict exactly how things are going to play out. But business owners are generally reasonably realistic about their prospects and have a fairly accurate sense of where their business is at.”

In the next nine months, businesses face a challenging transition to the long term ‘COVID Normal’, as the various support mechanisms are reduced and finally removed.

As the insolvency moratorium, JobKeeper and the JobSeeker coronavirus supplement are stripped away, the true state of the economy and business balance sheets is finally revealed.

What kind of damage we will find when the economic bandages are finally pulled off remains to be seen and is a matter of great debate among analysts and economists.

But if the views of businesses from DFA’s survey prove to be accurately representative of the broader business community, the situation for the economy may be more dire than the current consensus suggests.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator





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To talk up Australia’s coronavirus economic recovery, Scott Morrison found the perfect weapon


Australian political leaders don’t often quote New Zealand’s quarterly economic statistics, but on Friday both Scott Morrison (at a press conference) and Josh Frydenberg (on radio) were keen to highlight, unprompted, just how bad the results were across the ditch.

New Zealand, like much of the world, is in a COVID-induced recession. The economy there shrank by 12.2 per cent in the June quarter, a much bigger hit than the 7 per cent contraction in Australia.

The point of raising New Zealand’s record-breaking downturn, of course, was to demonstrate the relative success of Australia’s crisis management.

Since the pandemic began, there’s been debate over which has been the better approach: Australia’s “suppression” strategy or New Zealand’s “elimination”, which involved an early and much harder lockdown.

Despite the second wave in Victoria and all that’s entailed, the Prime Minister and Treasurer are clearly keen to keep the trans-Tasman comparisons alive.

History will ultimately judge who chose the best path and it’s probably still too early to say.

Jacinda Ardern put Auckland back into lockdown in August.(AP: Mark Mitchell)

There’s a long way to go

On the health front, New Zealand has unquestionably done better than Australia in both overall and per capita terms.

To date, New Zealand has recorded just over 1,800 coronavirus cases and 25 deaths in a population of nearly 5 million. Australia has recorded 26,882 cases and 884 deaths in a population of nearly 25 million.

Notwithstanding disputes over who’s to blame for hotel quarantine failures, contact tracing and aged care tragedies, the national figures are what they are.

When it comes to the economy, the June quarter results were unquestionably worse for New Zealand. The difference between a 7 per cent and a 12 per cent downturn is enormous. But one quarter, however bad, only tells the start of this story.

There’s a long way to run in the management of this recession and ultimate recovery. What happens from here on in will be far more revealing.

Daring to dream

Jacinda Ardern’s government is predicting a “record jump back to growth” in the September quarter. Facing an election in just four weeks, they would say that, but with life mostly back to normal since those hard lockdown days, most agree the next GDP figure will be far better.

In Australia, the Morrison Government is also daring to dream things may recover faster than previously thought, despite the unwanted second wave and prolonged lockdown in Victoria.

On Thursday, a dramatic drop in the unemployment rate from 7.5 per cent to 6.8 per cent surprised the markets, Treasury and the Reserve Bank.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Josh Frydenberg welcomes jobs figures that revealed a sharp drop in unemployment.

Some 111,000 new jobs were created in August, nearly all of them “self-employed” workers. Whether this is just delivery drivers and other “gig economy” workers picking up a few hours’ work or a more permanent shift to self-employment in the workforce, time will tell.

Either way, the figures were good news for most of the country (with the unsurprising exception of Victoria). Within the government there’s now uncertainty as to whether unemployment will keep rising as Treasury has previously forecast, or whether it has, in fact, peaked.

A budget reckoning

In just over two weeks, Frydenberg will deliver his recession budget. He knows how important this will be and the famously energetic Treasurer has been working around the clock to get it right.

He’s flagging personal income tax cuts, a significant business investment incentive and a truckload of new infrastructure spending. It’s all about shifting from income support to job creation in a private-sector-led recovery.

Before then, however, one of the government’s most critical decisions in this recession will take effect. The JobKeeper and JobSeeker payments will be wound back by $300 a fortnight or roughly 20 per cent. Millions of Australians are still relying on these supports and the cut will have a material impact on spending in the economy.

The government argues these hugely expensive lifelines can’t go on forever and believes they are so generous some recipients are turning down work, holding back business growth.

Equally, there are many who still need the support and have no prospect of finding a job any time soon. Tapering these payments, while we’re still in the middle of a recession, is a high-stakes call.

The trans-Tasman rivalry endures

The government is betting the worst is now behind us.

It’s confident the improvements now being made by the states in their contact tracing efforts will prevent another wave along the lines of the post-summer surge playing out across Europe.

Remarkably, the states only agreed on Friday to digitally connect their contact tracing data systems. It’s better late than never and will hopefully help to progress a further easing of state border closures in time for Christmas.

Some travel between Australia and New Zealand may even be possible by the end of the year, if both countries can keep virus numbers under control.

Either way, the trans-Tasman economic rivalry is set to continue.

Australia may have suffered a less severe downturn than New Zealand, the question now is how prolonged it will be.

David Speers is the host of Insiders, which airs on ABC TV at 9am on Sunday or on iview.



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Vic cases fall but economic impact deepens


While Victoria’s progress raises hope that the coronavirus health crisis is abating, the pandemic’s economic impact is proving to be deep and long-lasting.

While there were seven more deaths in the state, pushing the national toll to 844 on Saturday, new infections reached an almost three-month low of 21.

The southern state’s average of new daily cases over 14 days is now 39.3, below the figure of 50 which health authorities say is one pre-requisite for lifting lockdown restrictions in Melbourne.

Businesses in regional Victoria have been reopening following the easing of restrictions and Melbourne is on track for a slight loosening of lockdowns by the end of the month.

While daily life may become easier, Australians’ key life decisions are changing as a result of the economic recession, illustrated by a recent federal government report.

Research by the Centre for Population predicts that fewer Australian babies will be born over the next two years, as families delay their plans because of the economic climate.

“Our population growth will be the lowest since World War I as a result of COVID,” Minister for Population, Cities and Urban Infrastructure Alan Tudge said.

The research forecasts the fertility rate to drop to 1.59 babies per woman in 2021 compared to 1.7 in 2018.

For the nation’s elders, the pandemic means those on pensions will not receive an indexation on Sunday as would normally occur.

“All of the measures by which we make the determination about indexation have gone backwards as a result of the pandemic,” Minister for Families and Social Services Anne Ruston said on Saturday.

“Therefore, the indexation that would have occurred tomorrow is actually at a zero rate.”

Pensioners will instead be provided for in the federal budget next month, she said.

Meanwhile, stranded Australians have higher hopes of flying home after the states agreed to lift caps on international arrivals.

But Liberal MP Trent Zimmerman wants caps to be lifted completely.

“What I’d actually like to see is the states considering returning to what happened before the Victorian outbreak – which was effectively allowing people coming back home without a cap,” he told ABC News.

After the lessons of failed hotel quarantine in Victoria which led to a second wave, it was clear that a police and defence force presence was crucial to hotel quarantine, he said.

Given that presence was in place, Mr Zimmerman said he could not see why the states would not accept more people.

Mr Zimmerman also said that when JobSeeker payments end for unemployed Australians next year, he would prefer the replacement Newstart allowance to be higher than it was before the pandemic.

His colleague Ms Ruston was asked what the JobSeeker rate would be but remained vague, saying such decisions could not be made until “we know what a post-pandemic Australia looks like”.

More anti-lockdown protests are expected in Melbourne on Sunday after police made arrests and handed out fines on Saturday in protests which have become weekly skirmishes.

The state’s inquiry into the hotel quarantine scheme that led to its second wave will be in the spotlight this week as Premier Daniel Andrews and three of his ministers are due to appear on Wednesday.

NSW reported three new cases on Saturday, two in returned travellers and one acquired locally.



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Opposition to challenge government on economic and employment policy


THE OPPOSITION PARTIES have announced their intention to table an interpellation accusing the government of abandoning its economic and employment objectives, according to Helsingin Sanomat.

The interpellation is backed by all four opposition parties in Finland: the Finns Party, National Coalition, Christian Democratic Party and Movement Now.

The Finnish government announced the conclusions of its much-anticipated budget session on Wednesday, saying it has agreed on measures that – together with its earlier decisions – should grow the ranks of the employed by 31,000–36,000 by the end of the decade. The announcement was met with criticism from the opposition parties, which described the measures as insufficient and the 10.8-billion-euro increase in central government debt as excessive.

“The coronavirus is no excuse to do less and run up more debt. Finland is pretty much at the end of the road of borrowing and raising taxes,” stated Ville Tavio, the chairperson of the Finns Party Parliamentary Group.

The National Coalition declared early this month it intends to submit an interpellation if the government fails to come out of its budget session with measures to break the debt cycle, new employment targets and solutions to boost competitiveness.

The other opposition parties voiced their backing for the move this week, a spokesperson for the party told STT.

Aleksi Teivainen – HT



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Fed projections show it sees smaller economic hit in 2020 than previously expected



FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis

September 16, 2020

WASHINGTON (Reuters) – The Federal Reserve signaled on Wednesday it expects the U.S. economic recovery from the coronavirus crisis to accelerate with unemployment falling faster than the central bank expected in June.

In new economic projections released along with the U.S. central bank’s latest policy statement, Fed policymakers at the median see economic growth dropping by 3.7% this year, an improvement from the 6.5% drop projected in June.

The Fed also expects that the unemployment rate, which has improved faster than officials foresaw in June, will continue to drop, with policymakers at the median expecting joblessness to hit 7.6% at the end of this year and fall to 4% in 2023.

Inflation is expected to remain below 2% until 2023. The Fed last month unveiled a new strategy that pledges to lift inflation above the 2% level to make up for years of undershooting that target.

The projections are the first that outline how Fed officials see the economy reacting under the new approach to policy, which puts more weight on allowing job growth and also envisions inflation running above target for a period of time.

They are also the first since the economy entered what officials hope will be a steady recovery from the recession triggered by the coronavirus epidemic.

(Reporting by Howard Schneider and Jonnelle Marte; Editing by Paul Simao and Andrea Ricci)





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Europe’s Economic Revival Is Imperiled, Raising the Specter of a Grinding Downturn


LONDON — Europe was supposedly done with political histrionics. In the face of the pandemic, a continent not known for common purpose had put aside long-festering national suspicions to forge a collective economic rescue, raising hopes that a sustainable recovery was underway.

But the European revival appears to be already flagging, and in part because of worries that traditional political concerns may disrupt economic imperatives.

The European Central Bank — which won confidence with vows to do whatever it took to stabilize the economy and support lending — has been hesitant to reprise such talk, sowing doubts about the future availability of credit.

National governments that have spent with abandon to subsidize wages and limit layoffs are wrapping up those efforts, presaging a surge of joblessness.

And in the midst of the worst public health emergency in a century, twinned with the most severe economic downturn since the Great Depression, the British government has opted to unleash a fresh crisis: It has sharply escalated fears that it may follow through with years of bellicose threats to abandon Europe without a deal governing future commercial relations across the English Channel.

A chaotic Brexit would almost certainly worsen Britain’s already terrible economic downturn while also assailing major European trading partners like the Netherlands, France and Spain.

Collectively, these developments have crystallized fresh worries that Europe could find itself mired in bleak economic circumstances for many months, especially as the virus regains strength, yielding an alarming increase of cases in Spain, France, and Britain.

“It’s hard to imagine a recovery that’s going to be strong and sustained given the current situation,” said Ángel Talavera, lead eurozone economist at Oxford Economics in London. “There’s not a lot of engines of growth.”

A new Oxford Economics tracking model shows that commercial life in the 19 nations that share the euro currency bounced back sharply in July and much of August, before activity slowed again in recent weeks.

But as Covid cases have increased in recent weeks, consumers and businesses have altered their own behavior, even where governments have loosened restrictions. People have scrapped holidays, limited their exposure to shopping areas, and opted to economize in the face of threats to businesses and jobs.

The results reinforce what has become a truism of the pandemic: The fundamental threat to economic livelihood is the virus itself. The lockdowns have simply intensified the effect.

“It’s hard to anticipate that consumers are going to be driving much of a recovery without the health situation under control,” Mr. Talavera said.

That was the backdrop as the European Central Bank convened last week amid deepening worries about flagging growth, which raised the prospect of deflation — falling prices, which discourage investment and choke off future growth. Exporters were troubled by increases in the value of the euro, which makes European goods more expensive on world markets.

Some analysts hoped to hear reassuring words of action from the bank’s president, Christine Lagarde.

In the first phase of the pandemic, she unleashed an overwhelming surge of money into the economy, banishing fears of a shortage of credit. In mid-March, the bank promised to spend up to 750 billion euros ($892 billion) to purchase government and corporate bonds. By June, the central bank had nearly doubled that target. Along the way, Ms. Lagarde won plaudits for assuaging the darkest imaginations of a marketplace grappling with an unfamiliar emergency.

Ms. Lagarde reportedly played a behind-the-scenes role in bringing to fruition a landmark development in the history of the European Union — an agreement to forge a $750 billion euro rescue fund, with much of the money raised through the sale of bonds backed collectively by member nations.

In previous emergencies, northern European countries — especially Germany, the Netherlands and Finland — had opposed putting their taxpayer money on the line to cover the shortfalls of their southern European brethren while indulging crude stereotypes about the supposedly profligate ways of the Mediterranean.

Such episodes had revealed Europe to be a union in name only — a reality that tended to enhance trouble, prompting investors to demand higher rates of return for loans to Spain, Portugal and Italy, lifting borrowing rates for those countries.

But the passage of the coronabond proposal — which was championed by France and Germany — cemented the sense that the pandemic had brought about a maturation of the bloc.

“The rich countries have shown they are willing to put their credibility on the line to support the others,” said Christian Odendahl, the Berlin-based chief economist at the Center for European Reform. “That will stabilize expectations about the European economy going forward.”

But he was struck by Lagarde’s reticence in pledging further action last week. “I would have expected her to be a bit more aggressive, and say, ‘OK, if this continues, we will need to do more,’” Mr. Odendahl said.

Instead, her silence generated the impression that the European Central Bank — as ever, balanced between the fiscally conservative inclinations of the north, and the debt-saturated nations of the south — was prioritizing the protection of consensus over decisive action.

The greatest cause for concern centers on what has not changed in Europe: Both the euro and the broader European Union are governed by strict rules limiting the allowable size of budget deficits.

Those rules have been suspended, permitting member nations to borrow aggressively to finance their job protection programs. But the strictures will return eventually, forcing spending cuts. Already, member nations are debating how long they can extend the relief. Companies are resorting to layoffs.

Joblessness rose within the eurozone to 7.9 percent in July, marking its fourth straight month of increases, according to the Organization for Economic Cooperation and Development in Paris.

“Unemployment is exploding, and probably will be exploding everywhere between now and the end of 2020,” said Amandine Crespy, a political scientist at the Institute for European Studies at the Free University of Brussels. “All the lights are red.”

France typifies the concern. As the country tumbled into a deep recession early this year, President Emmanuel Macron delivered a massive 600 billion euro ($711 billion) package of spending measures to stimulate a recovery.

About 500 billion euros was dispensed to troubled companies via tax cuts, subsidies and state-backed loans. More than one million private-sector workers in industries ranging from restaurants to aerospace have been promised an additional year of wage subsidies.

All told, the government is covering 90 percent of the French economy’s coronavirus-related losses, said Patrick Artus, chief economist at the French bank Natixis and an economic adviser to Mr. Macron’s government.

An economic plunge that had been forecast to reach 10.3 percent this year has been moderated to 8.7 percent, the Banque de France said on Monday.

But some economists, who say more support is needed, worry that a new 100 billion euro “turnaround plan” announced last week by Mr. Macron’s government will fall far short of generating a revival.

The program largely focuses on longer-term investments over the next decade in green industries like electric car batteries and hydrogen power. It comes as Green Party candidates are sweeping into power in major French cities, prompting Mr. Macron’s government to shift toward more ecological policies.

About a third of the money would subsidize corporate tax cuts to stimulate long-term investment. The government is betting that if it can instill confidence that a brighter future is unfolding, French savers will invest in forward-looking industries and generate jobs.

Economists affirm the logic, but fret that the benefits could take too long to emerge.

“The ambition is there,” Charlotte de Montpellier, an economist at ING Bank, said in a note to clients. “But the realization could turn out to be more complicated than expected.”

As if none of this were enough, Prime Minister Boris Johnson of Britain — his popularity plummeting following his government’s tragic mishandling of the first phase of the pandemic — has taken this as the moment to embrace rogue tactics in negotiating a trade deal with the European Union.

He has advanced a bill that renounces commitments Britain has already made to the European bloc in a delicate maneuver to prevent the re-imposition of a border separating Northern Island — part of the United Kingdom — from the independent Republic of Ireland.

Former prime ministers and members of his own Conservative Party have assailed the move as a violation of international law, its mere formulation undermining the nation’s standing as a credible member of the world community.

Mr. Johnson’s action has poisoned dealings with Europe, significantly increasing the chance that Britain will crash out of the bloc without a deal when an official transition period expires at the end of this year. Such an outcome could bring unquantifiable amounts of chaos upon the ports on both sides of the English Channel.

Given that Britain sends nearly half of its exports to the European bloc, an unruly Brexit would almost certainly exacerbate the perilous straits gripping the nation’s economy, which contracted by more than 20 percent between April and June. Europe stands to be hurt, too.

“It comes at a bad time,” said Mr. Odendahl. “Neither for Britain nor for the E.U. do you necessarily need disruption to your trade relationship while trying to keep your economy afloat during a pandemic.”

Peter S. Goodman reported from London and Liz Alderman from Paris.



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Pandemic rebel Sweden plots its economic recovery


While growth has picked up, its COVID-19 infection rate has also plummeted as cases rise elsewhere in Europe, adding fuel to the debate over drastic economic shutdowns.

European Centre for Disease Prevention and Control figures show Sweden with a lower infection rate than Nordic neighbours who imposed tougher restrictions, which Johan Carlson, the head of its public health agency, claimed as a vindication of a “consistent and sustainable” strategy.

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All through the crisis, schools stayed open, while Swedes could visit cafes and restaurants, go shopping or hit the gym even as the death toll rose. Volvos may not be at the racy end of the motoring spectrum, but the controversy over its light-touch lockdown – masterminded by state epidemiologist Anders Tegnell – was anything but boring. Around half of the nation’s 5838 deaths so far, for example, have been in care homes, which were locked down belatedly at the end of March.

So can Sweden’s falling infections and lesser economic blow be taken as a victory for its light-touch approach? According to economists, the answer is more nuanced, and it depends on comparisons. The country’s 8.1 per cent decline in GDP during the first half of 2020 looks good against the eurozone – which fell more than 15 per cent – but not so much against its Nordic rivals who had tougher lockdowns. Denmark, for example, saw an 8.8 per cent decline, while Norway’s was similar, at 8.3 per cent. Finland, whose economy “only” fell 6.3 per cent, actually comes out ahead of Sweden despite a higher score on Oxford University’s stringency index, which measures the severity of lockdowns out of 100. Finland averaged 33.3, compared to Sweden’s 25 over the first half.

Sweden has also seen more than six times as many deaths per million as Denmark, underlining the stark human costs of the policy.

By these yardsticks, the case is hardly conclusive. Tomas Dvorak, an economist with Oxford Economics, says: “The overarching picture is that I’m not sure whether the ‘no-lockdown light touch’ policy has been that beneficial economically.”

Sweden’s less dense population and the highest share of single-person households in Europe make it less likely to succumb to infections. But the characteristics of its economy are also more pandemic-proof than many European peers. Swedish consumption fell sharply between March and May, but the economy is less reliant on services and tourism than badly hit economies like Britain and Spain. As a major exporter, trade accounts for 90 per cent of its GDP. Three quarters of its exports are sent to the eurozone, with Germany alone accounting for 11 per cent of total overseas sales.

The overarching picture is that I’m not sure whether the ‘no-lockdown light touch’ policy has been that beneficial economically.

Oxford Economics economist Tomas Dvorak

But while the domestic hit was smaller, the emphasis on exports leave it exposed to a resurgent virus overseas, if demand in major markets sinks. Those big manufacturers like Volvo and truck maker Scania, or Skanska – the world’s fifth biggest building firm – also have extensive supply chains vulnerable to COVID-19 disruption. David Oxley, European economist at Capital Economics, warns: “I wouldn’t say Sweden is out of the woods. Domestically the economy has done pretty well. By any normal standards it has seen an eye-watering decline but in a comparative sense it has got off lightly. Activity is picking up.

“But Sweden is more open and oriented to exports than many. Being such an open economy, they are more reliant on what policymakers elsewhere do. That will be a great headwind for growth over the coming years if growth in major European export markets start to slow. Sweden won’t be immune from any of that.”

Also unhelpful to the export cause is an appreciating Swedish krona, which has recovered all of the ground in the early stages of the crisis when traders were spooked by high death rates and a laissez-faire lockdown. Alongside these headaches overseas, Sweden has its own internal pre-COVID challenges. Household debt is high, and like much of Western Europe, its population is ageing, putting up welfare bills.

Swedes had defended their relaxed approach to COVID-19 management. Credit:AP

Sweden also has issues with high unemployment, which has jumped above 9 per cent despite government support schemes to ease the pandemic. Even before the outbreak, the nation was struggling to absorb the record 162,000 asylum seekers it took from Syria and elsewhere in 2015.

The difficulty integrating the newcomers, which pushed the population above 10 million for the first time in 2017, fuelled the rise of the populist Swedish Democrats in 2018 elections and left Social Democrat prime minister Stefan Lofven at the head of a fragile coalition.

But the one major advantage the Swedes do have compared to many other nations is massive fiscal firepower, built up after years of balanced budgets since a banking crisis in 1992. That gave it the leeway to fire off an initial SEK300 billion ($46.9 billion) in aid such as deferred tax for companies as part of a stimulus worth 17 per cent of GDP, while Sweden’s central bank, the Riksbank, also made SEK500 billion in loans available to companies. The Riksbank also launched SEK300 billion in quantitative easing and caught markets by surprise in the summer by extending the programme into the middle of next year with a further SEK200 billion, although it is yet to take interest rates back into negative territory.

Next week Magdalena Andersson, Sweden’s finance minister, is set to add further ballast when she presents her 2021 budget on September 21.

Robert Bergqvist, a former Riksbank senior official and now the chief economist of Swedish bank SEB, expects stimulus measures worth a further 2 per cent of GDP as “aggressive” fiscal policy takes the strain again.

He says: “We are going to have tax cuts for low and middle-income earners – that is good as a kick-start. I also expect the government to spend more money on municipalities who will use the money immediately, so you will have a swift response. Hopefully we are also going to see more infrastructure investment, as we would like to see more green investment.”

Even after all that, Sweden’s deficit is unlikely to rise past 45 per cent of GDP and he reckons “there is lots of ammunition to support growth”.

The approach contrasts with the recent speculation over tax rises in Britain, which Bergqvist believes would be a “big mistake”. He warns: “Right now you want to stimulate the economy. If you start talking about it [tax rises] then the private sector will not spend the money.”

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SEB forecasts Sweden’s growth will bounce back by 4.2 per cent next year and expand a further 3.1 per cent in 2022. But even as the country claims a COVID-19 victory, the global fight against a resurgent virus is entering a dangerous new phase. That could leave some potholes ahead in the Volvo economy’s road to recovery.

Telegraph, London

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