Ravi Menon: Covid-19 - we need more connectivity, not less Keynote speech (via video conference from Singapore) by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at Caixin Summer Summit 2020, 22 June 2020. * * * Distinguished guests, ladies and gentlemen, good morning. Thank you for inviting me to the Caixin Summer Summit 2020. COVID-19 has triggered the sharpest contraction in the global economy since the Great Depression of the 1930s. We can expect a gradual recovery from the third quarter onwards as countries re-open their economies. But there is considerable uncertainty about the strength and durability of this recovery. The trajectory of the economy will be largely shaped by the trajectory of the pandemic – which is itself a significant source of uncertainty. The risk of secondary waves of infection is not trivial. Those countries that have put in place strong safe management measures and a robust regime of testing, contact tracing, and swift isolation of infected persons, are more likely to minimise a second outbreak of infections and sustain their economic recovery. China’s experience is encouraging in this regard. It has been taking decisive steps to contain new outbreaks of infection while lifting movement restrictions and restoring economic activity. It is important that as countries seek to contain the pandemic, they do so in a way that does not undermine connectivity among them. Closer integration – through trade and investment – has underpinned the prosperity and poverty reduction we have seen globally since the Second World War.
That is well above the trend rate for the past 20 years, of just over 2%. Employment has increased by 1.2 million over this period, while unemployment has fallen almost month by month, on the familiar claimant count measure, from a peak of over 10% in 1993, to some 4.7% now. That is the lowest rate for 18 years. Meanwhile retail price inflation (on the Government’s target measure) has averaged around 2¾% - that’s the lowest for a generation. There’s not much evidence here that low inflation inevitably means low growth and employment. But, of course, we started this period with demand below capacity - with a fair amount of slack in the economy which we were gradually taking up. By last year it had become clear, in the evidence of rising capacity utilisation and of growing tightness in the labour market, that unless we acted to moderate the growth of demand we were at risk of overheating. That’s why we tightened policy over last summer - to slow things down before inflation took off - and to head off a subsequent recession. And although, as I say, you can never be sure - economic forecasting is a very uncertain business - a necessary slowdown rather than a more serious recession is what we think we’re seeing, and, as I understand it, that is what your own General Council thinks too. Our problem in slowing the economy down has been enormously complicated by the increasing imbalance between the domestic and the internationally-exposed sectors of the economy.