5 year economic outlook due to Covid and governmental response - your opinions

The Quarantine Zone
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Please do feel free to comment on any country you like, even if it isn’t your own.

I’m in the US, and have no special knowledge of economics. But I do know we’ve had inflation below the target amount for quite a while. Now we have inflation higher than the target amount - and of course, I know supply chain issues are partially responsible for higher prices (supply not meeting demand), too. But I’ve occasionally stumbled across comments of those that think we’re headed for high inflation (70s/ early 80s levels) or even the rare one that believes in hyperinflation (which I think of as 1000%+ per year, but others have other definitions) due to the stimulus, etc… Some think stagflation. Some think healthy growth will be the result or that the current higher inflation is just a result of economic recovery as things have opened up again. And some are more concerned with a Japan-like outcome of perpetually non-existent inflation/risk of continuing deflation (basically the same concerns as before Covid-19).

The shrinking fertility rate plays in the deflation fears - especially as the US has been dependent on immigrants to keep those numbers up for a while. But much of the developing world is having smaller families now, too, and the economic (and social security) system is built on continuing growth. I’m not at all sure that will make that much of a change within 5 years.

In a five year time period, I tend to default to non-extremes, but that’s really just me thinking things will always stay mostly the same and change slowly, and I don’t know that I have real solid foundation for that.

So, what do you think is the most likely five-year economic impact of Covid on your country (or any other)? And, of course, since the pandemic is still ongoing, there’s also how you think it will continue (deaths skyrocket or drop, places open or close, etc.).

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Australia experienced the world’s longest unbroken period of prosperity (110 consecutive quarters since the Australian economy last faced a recession) growth until broken in Q3 2020 under COVID.

The economy has grown since that point and is now larger than it was pre-COVID.

Sydney going into lockdown over the COVID delta variant will crimp but not disrupt that recovery.

As shown by the graphic those 27 years were also, not co-incidently, a period following Paul Keating who “snapped the inflation stick” in the early 1990s .


Source

Now there are signs of a return of inflation, though the Reserve Banks has been trying to get inflation up from the sub 1% range to a target of 2-2.5% for some time.

The most recent CPI results indicate current inflation is now tracking around 5%, pumped up by the significant stimulus cheques and mitigation policies of the Federal and State governments. They have obviously worked, may have been overly generous but that’s been a more successful strategy than being overly parsimonious.

The key to this swing in inflationary fortunes is that the source is supply side.

The factories in SE Asia which provide much of the domestic consumer goods market here are going back into lockdown. International containerised freight is getting expensive and limited in capability. In early 2020 a 40F FCL contracted cost about USD1,200 ex China. Currently spot rates are bidding up to USD20,000. But the supply capability is still there, just under utilised. When COVID is contained, they don’t need to build factories.

Your economy can recover much more quickly from that than either demand side inflation or a recession/depression.

The short term outlook, I’m quite sanguine about the relatively good times ticking over.

A bigger problem for the domestic economy is the ongoing trade stoush with PRC who seem to be mugging us as representing the little brother surrogate for the US.

That could require something more structural.