Governments need to spend to protect their economies from coronavirus fallout

Governments need to “spend an awful lot of of money” to protect their economies as global authorities seek to revive growth amid the Covid-19 pandemic. That’s according to Rob Carnell, chief economist and head of research for Asia Pacific at ING.

“What’s needed is huge amounts of spending,” Carnell told CNBC’s “Street Signs” on Wednesday. “You’ve got an economic potential in your economy which could get wiped out if you don’t, you know, protect it.” Carnell said it was a fiscal issue rather than a monetary problem, and advised governments to “spend the money now.”

“Don’t worry about what the ratings agencies are gonna do because it’s not gonna be an issue if you got no economy left once a vaccine — if a vaccine comes through and we start to move back to normal — and all your business has gone bust and everybody’s unemployed,” he said.

However, he acknowledged that there are limitations and fiscal policy — which may include government spending or taxation — could become a “problem.” “Unless you keep on spending at exactly the same pace … it delivers contraction,” he said.

Using the U.S. as an example, where lawmakers are currently debating over plans for more coronavirus relief, Carnell argued that the fiscal support was a “contraction” rather than “stimulus.” The Republican coronavirus relief bill unveiled Monday included plans to cut the enhanced unemployment benefits from $600 to $200 per week, on top of what recipients get from states.

“We know .. the stimulus programs, the amounts of money that are going to be offered to furloughed, unemployed workers, and the supplementary unemployment benefit schemes are gonna be lower than before,” he said. “You’re saying to these people: ‘Okay we might give you some more money but you’re basically gonna need to take a pay cut.’”

“That’s not really stimulus,” Carnell said. “In the language that I use … that’s contraction.” Governments need to be “prepared to keep on spending” once they start, or risk facing such problems, he added.

Asked about the balance that has to be struck by authorities in the incentive structures to ensure that people are not discouraged from returning to work, an issue currently being debated by U.S. lawmakers, Carnell said “there’s no real answer.” Still, he acknowledged that the initial payments doled out stateside were “too generous.”

For his part, U.S. Senate Majority Leader Mitch McConnell told CNBC on Tuesday: “We don’t wanna make it more profitable to stay home than to go back to work, that’s not what unemployment insurance is about.”

Governments need to spend to protect their economies from coronavirus fallout via @MasterMindUpdate
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