Economic recovery: Many economies now booming post-COVID

The economic impact of the COVID pandemic varied greatly worldwide, yielding valuable lessons, as Alan Austin reports.

IS INFLATION TOO high? Wages too low? Exasperated with your government’s economic mismanagement? No problem. Just migrate to Denmark. That small Scandinavian country has emerged from the COVID recession with an economy larger and stronger than at the outset.

So strong, in fact, the Danes are now building the world’s longest underwater tunnel so they can slip across to Germany for an apfelstrudel and Weissbier any time.

Booming through the recession

Denmark’s jobless rate is now 2.3%, down from 3.2% in December 2019. Its annual economic growth is at 1.6%, up from just 0.9% in 2019. Its budget surplus is at a healthy 3.3% of gross domestic product (GDP) and government debt has diminished from 33.7% of GDP before the pandemic to 30.1% at the end of last year.

Ireland arguably performed even better through the COVID recession. Its jobless rate is down from 4.8% in 2019 to 3.9% and its economic growth last December was an extraordinary 12.0%, up from 6.3% in 2019. It’s budget surplus has increased from 0.5% of GDP in 2019 to 1.6%, and debt has been slashed from 57.2% of GDP before the pandemic to just 44.7% last year.

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Evaluating economic performance

We now have data on employment, economic growth, budget deficits and government debt up to the end of 2022 for all 38 members of the Organisation for Economic Cooperation and Development (OECD). We can now determine which administrations best handled the COVID recession in 2020 and 2021. There is a chance this may provide helpful guidance for the future. Okay, a slim chance, but a chance.

The COVID recession did not cause widespread long-term job losses, as did the global financial crisis of 2008-2012. More than half the OECD economies now have lower jobless rates than before the crisis, several much lower.

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Of the 38 economies, 20 now have lower jobless rates than in 2019, four of them by more than 2%. Impressive. Two have unchanged rates – Israel and Poland – and 16 have higher jobless rates.

As with previous global downturns, incurring deep debt was not inevitable. Seven OECD members emerged from the recession with less debt. They were Ireland, Greece, Denmark, Norway, Portugal, Sweden and Turkiye.

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Those economies all kept tax revenue steady through the crisis by maintaining relatively high tax rates. The average top personal tax rate of all seven is 45.5%.

The notable losers

Only a few economies suffered badly through the COVID recession, emerging weaker than they went in.

Germany is a surprise here, given its history of sound performance, with its jobless rate increasing from 3.3% to 5.6%. The national budget blew out from a surplus of 1.5% of GDP in 2019 to a deficit of 2.6%, and government debt deepened from 58.9% of GDP to 66.3%. Annual GDP growth weakened slightly.

The United Kingdom has not benefited from the recent revolving doors of prime ministers and finance ministers. The current chancellor of Exchequer, Jeremy Hunt, is the sixth since mid-2019.

Britain’s economic growth fell from 1.3% in 2019 to 0.6% at the end of last year. The jobless rate increased marginally to 3.9%. Its budget deficit blew out from negative 2.7% in 2019 to negative 5.5%, and government debt worsened from 82.8% of GDP to 101%, the highest since the recovery period following World War II.

Hungarians suffered a state of emergency ordered by the repressive Viktor Orbán, who then ruled by decree. Hungary’s economic growth tumbled from 4.4% in 2019 to a puny 0.4% at the end of last year. The budget deficit blew out from negative 2.0% of GDP to negative 6.2%, and government debt worsened from 65.3% of GDP to 73.3%.

Australia returns to the winners’ list

Although it’s only a year since Labor replaced the Coalition which had mismanaged the economy for more than eight years, progress is evident already.

The jobless rate is 3.7%, down from 5.1% before the pandemic. Annual economic growth is up from 2.2% to 2.7%. The deficit is a modest 1.4% of GDP, and the debt to GDP is now steadily declining. Other countries besides Denmark and Ireland to have weathered the COVID storm include Greece, Italy, Iceland, New Zealand, Canada, Spain, Mexico and Norway.

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Americans still in Trump slump

The decision by the Trump Administration to slash taxes on the wealthy and cut the corporate tax rate from 35% to a disastrously low 21% has crippled the U.S. economy. Although the jobless rate is a creditable 3.4%, economic growth tumbled through the recession from 2.6% to a miserable 0.9% last year. The budget deficit remains at record highs, and debt deepened from 107.2% of GDP in 2019 to 129% now.

Lessons from the COVID crisis

One key observation is that a global downturn does not necessarily involve everyone. Just as Australia and Poland chose not to go into recession during the global financial crisis, seven OECD members averted technical recession in 2020, although they all experienced at least one negative quarter. They were Chile, Ireland, Estonia, Japan, Lithuania, Poland and Turkiye.

Here’s another curious thing. Avoiding a recession does not guarantee general well-being. Estonia, Poland and Lithuania did not experience two consecutive negative quarters, so averted a technical recession. But all three experienced more jobless workers, lower economic growth, deeper budget deficits and expansion of government debt.

The governments which best safeguarded the material well-being of their people were generally those which prioritised care for low-income earners and welfare recipients, maintained adequate tax collections from corporations and the top end, and allocated public funds to social housing and infrastructure. Like that amazing tunnel in Denmark.