The success of financial support given during the Covid pandemic and the rapid economic recovery means governments are less likely to choose austerity in future shocks, according to Aviva Investors.
The insurer noted the level of financial support provided had resulted in the “pretty remarkable outcome” that some economies were already ahead of their pre-recession levels, with others getting there quickly.
Speaking at the Corporate Adviser Summit 2021, Aviva Investors chief economist Michael Grady, highlighted the “very rapid recovery” in major economies.
“It’s such a rapid recovery that we’re getting into expansion with economies above where they were when the recession hit – the US is already past it,” he said.
“That’s a pretty remarkable outcome. In 18 months from the deepest recession that we’ve got back to where we were in such a short period of time.
“That’s compared to the financial crisis where it took the US twice as long and the Eurozone four times as long.”
Grady noted there were several reasons for this, but perhaps the most significant was financial policy, where governments “threw everything at it and supported household incomes”.
He believes the positive outcomes from this will see governments opt to turn the taps on in future shocks, rather than cutting spending through austerity.
“I think for the first time in a long time governments realised that having done it, when a nasty shock comes along you can turn the taps on pretty quickly if you want to and it’s very effective,” Grady continued.
“Fiscal policy like that hasn’t been used since the 1970s, so I think government’s will think, when another nasty thing comes along, let’s do that again.”
