The economy will also, though, be shaped by the behavioural responses of households and businesses, and the policy responses of Governments and central banks, to these shocks. Understanding those responses is the purpose of my comments today. I will partition my assessment of the economic impact of the Covid crisis into four phases, or “quarters”, covering the past, present and near and distant future. The first “quarter” covers the initial impact of the virus; the second, the immediate recovery following these shocks; the third, the second-round effects on spending and employment; and the fourth, the longer-run impact on households and businesses. Both the UK and the global economies are already well into the “second quarter” – the recovery phase. The UK’s recovery is more than two months old, while the global economy is perhaps three months into its recovery, in both cases from an exceptionally low starting point. Let me say a little about each of the phases, before concluding on the role of policy in supporting the economy during the Covid crisis. “The First Quarter”  The Covid-19 crisis has dramatically affected public health in every country in the world.
So is this the new paradigm of known-unknown? That is, we know what the major drivers of change are, but we cannot forecast outcome. So the key strategic challenge is how to deal with Known-Unknown. For the short-term, the key priority is dealing with the fragile and volatile global economy. Stability is the priority for banks and regulators. The strategic policy question is how to get the right balance between risk and return, stability and growth. Weaker banks will retrench, leaving rooms for the few stronger banks to take up market share. In Asia, we have seen banks from the Asia-Pacific, notably Japanese, Chinese, and Australian banks moved into market space where European and U.S. banks have retracted. ASEAN banks are also shifting strategy to play a greater role to support their conglomerates in the regional expansion. If this regional banking trend continues, what are the implications for banks, regulators, and central banks? While the region has so far remained relatively resilient to the first round impact of European bank deleveraging, there is significant concern about the second round impact through the slowdown in global trade and economy that will impact growth. Another known-unknown in the short-term is the impact of interaction of various traditional and non-traditional policy measures, such as monetary policy, prudential policy including macroprudential. As a result of this crisis, the acceptable policy space has been significantly widened, for example, macroprudential policy now includes sectoral measures such as those to prevent property bubbles or to control adverse impact of capital flows.