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- Introduction: Euro highest against US dollar since March
- Full story: Bitter clash over recovery fund
- EU leaders to resume summit at 3pm UK time
- €350bn compromise on recovery fund on table
- Coronavirus – latest updates
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Back on Wall Street, the S&P 500 has now returned to its level on 31 December 2019, meaning it has recovered much of its Covid-19 losses.
The S&P 500 is up .03% right now YTD and for the first time since Feb 24.
Two Bank of England policymakers have updated MPs about the impact of Covid-19 on the UK economy, at their reappointment hearings today.
Chief economist Andy Haldane told the Treasury committee that there will “inevitably” be some long-term scarring of the economy as a result of the Covid crisis, including a hit to employment.
The two key channels through which scarring of the economy’s longer-term potential might arise is through reduced business investment and dynamism, hitting the stock of physical capital, and through high unemployment depleting the skills of the workforce and shrinking the stock of human capital.
In the MPC’s illustrative scenario published in May, it was assumed that scarring of businesses resulted in the productive capacity of the UK economy being persistently lower by around 1¼%. There was little assumed scarring of the labour market. In practice, there is the potential for scarring effects in the labour market – for example, if sectoral or skills mismatches between workers and companies make it difficult for people to find new jobs, raising the economy’s equilibrium rate of unemployment and lowering its productive potential. Whether the economy experiences scarring, through businesses or workers, will depend on the actions taken by firms, as well as on policy actions taken by Government.
Rather than a radical change, I think this shock could accelerate pre-existing technological trends; for example, more remote working, a switch to online retail, distance learning and more investment in artificial intelligence. Added to pre-existing climate change concerns, there may be a permanent shift away from long-distance air travel. These changes may have knock-on macroeconomic impacts. More remote work, e-commerce and distance learning could weight on the demand for and the rental price of commercial real estate.
The switch to online retail and greater AI could have implications for aggregate productivity, as well as driving changes in the share of income accruing to workers versus capital. Changes are also likely to depend on the success of policies put in place – countries have the opportunity to shape the nature of any turning point coming from the crisis.