Pedestrians walk outside the New York Stock Exchange in the US
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The U.S. economy is recovering from the Covid-19 recession, but some economic “scars” may take a long time to heal, said Richmond Federal Reserve Bank President Thomas Barkin.
Economic scarring refers to the damage left 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 Credit Suisse’s Asian investment conference held virtually this year.
“Vaccines are being rolled out, case rates and hospitalizations are declining, excessive savings and fiscal stimulus should help fund the accumulated demand of consumers exhausted by isolation and released by vaccines and the climate more warm, ”he added.
The US economy contracted by 3.5% in 2020 compared to a year ago, the Office 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 6.5% this year and 4% next year.
“Scars” of povemic covida
The U.S. labor market took about a decade to recover from the global financial crisis, but will likely see less long-term damage this time, said Barkin, who is a voting member of the Federal Open Market Committee.
This is because the loss of jobs in the United States over the past year has been concentrated in sectors such as the cleaning and food service, where workers change jobs regularly and therefore could move on. to similar roles and other industries more quickly, he explained.
In addition, an increase in remote work modalities means that job seekers could find a new job anywhere else without relocating, as long as 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 fathers, especially mothers, quit their jobs to care for their children after schools and kindergartens were closed to prevent the spread of Covid-19.
While there has been some recovery, the parental labor force participation rate remains about 6 percentage points below pre-pandemic levels, Barkin said.
“If parents who left the workforce do not return, this will have long-term negative implications for the growth potential of the United States,” he said.
School closures and the shift to remote learning will also affect students without access to computers and a reliable Internet connection, which could lead to “huge losses” in education and skills levels in the U.S. job market. in the long run, Barkin said.
Other possible “scars” pointed out by the Richmond Fed chairman include:
- Small businesses have been hit by the pandemic, and a reduction in the number of such businesses could cause the U.S. economy to lose the “game-changing productivity gains” they often offer.
- While there is no immediate debt crisis in the United States, a “huge increase” in federal debt over the past year could diminish the ability of policymakers to respond to the next crisis.
To mitigate economic “scars,” policymakers would have to “complete the process to control this virus,” Barkin said.
“Scars, whether in workers or companies or communities, should be much less so in a world capable of returning to normalcy or something that looks like normalcy quickly versus one in which people still have fear of getting into an elevator, ”he said.
“The priority now is to distribute the vaccines and reopen the economy safely. We are making a lot of progress on that,” he added.