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Sensemaker: Boom time

Monday 19 April 2021

What just happened


Long stories short

  • The US warned Russia of “consequences” if opposition activist Alexei Navalny, who needs urgent medical care, dies in prison.
  • Fire spread across South Africa’s Table Mountain to Cape Town University, forcing student evacuations and burning historic library collections.
  • Six opposition parties called for an inquiry into Boris Johnson’s “failure to be honest”.

Boom time

Households around the world saved $5.4 trillion during the Covid pandemic. It’s a big number – worth over six per cent of the world’s economy – and reflects savings in excess of what households used to put away before businesses were shut and people worked from home. 

There are reasons to be excited about the glut:

  • Businesses are reopening and the savings can fund spending that’s been pent-up for a year. If households spend just a third of their excess savings, they can raise the world’s economic growth rate – which experienced its deepest fall in modern history during the pandemic – by 50 per cent this year and next.
  • And there are signs that households are ready to spend. A measure of global consumer confidence reached its highest level since records began in 2005, with households across all regions of the world feeling optimistic about the economy.
  • Many of those households had their incomes protected by unprecedented government stimulus schemes, like furlough and business grants. Government deficits are now also unprecedented but, if households really do splurge, policymakers can expect rises in sales tax revenues.

All good news. Except, as usual, big numbers hide many small problems. It’s richer households that have accumulated most of the excess of savings. Nearly two-thirds of excess savings in the US are held by the richest 40 per cent of its population, according to Goldman Sachs chief economist Jan Hatzius, and “high-income households will hold the bulk of excess savings” because they’re more likely to see the extra cash as more wealth rather than more income. In the UK, the Bank of England found nearly three-quarters of households that reported excess savings plan to hold them in their bank accounts.

Where richer households have begun spending, it’s been on luxury brands. Sales of vintage wines and designer clothes in China have lifted European brands. Conversely, government grants for lower-income households in Europe and the US led to more purchases of Chinese products, like knock-off running shoes and electronics.

An economic recovery driven by consumer spending will be unequal and strange. Some households will gripe about not getting a table at a restaurant or a seat at a show and others will remain dependent on government support for essentials and cheap products. Government stimulus can be a boon to businesses abroad, but not always ones at home.

It’s investment that will drive a fuller, longer-run economic recovery and governments can make it happen. One idea is to allow businesses to write off capital spending. Another is direct investment in infrastructure. There is the money cushion for it: about $5.4 trillion.


Wealth investment, fairness, prosperity

Golden balls
England’s richest – but not necessarily most successful – football clubs agreed to join a new breakaway European Super League financed by JP Morgan. The clubs, including Tottenham (who, this morning, sacked their manager for poor performance) and Arsenal (9th in the Premier League), will join other elite European clubs like AC Milan, Real Madrid, and FC Barcelona. These clubs will continue to compete in their national leagues, but will establish a “new midweek competition” that will start “as soon as practicable”. Uefa, the union of European football associations, warned that players in the new league would be banned from all other competitions, even international matches. Football fans called the European Super League a “concept driven by avarice and self-interest at the expense of the intrinsic values of the game we hold so dear”.


Our planet environment, natural resources, geopolitics

Greenwash
The world’s biggest fossil fuel companies are “greenwashing” their contribution to global warming with deceptive advertising campaigns, according to a group of environmental lawyers. ClientEarth called the practice “a great deception” and called on policymakers to ban fossil fuel advertisements unless they come with health warnings like those found on cigarette packets. Their report concerned campaigns by ExxonMobil, Aramco, Chevron, Shell, and Equinor. In 2019, ClientEarth’s lawyers filed a complaint with the OECD alleging that BP’s advertisements misled the public by focusing on its low-carbon products when 96 per cent of its spending was on oil and gas. BP withdrew the advertisements before the complaint was assessed.


The 100-year life health, education, living, public poliCY

Jab market
Countries that have restricted the use of the Oxford/AstraZeneca and Johnson & Johnson Covid vaccines are wondering what to do with their unused jabs. The restrictions relate to an extremely low risk of developing blood clots after taking the jabs: according to the UK medicines regulator, if 10 million people got the AstraZeneca jab, 40 people might get the clots and about 10 would die – a one-in-a-million chance. Nevertheless, countries like Denmark, which placed restrictions on the jab and found itself with over 50,000 unused doses, are receiving offers for the doses. The Czech Republic offered to buy “all AstraZeneca vaccines from Denmark” and Estonia, Latvia and Lithuania also expressed interest. Denmark hasn’t reacted yet. But the situation shows that the existing means for the distribution of Covid vaccines are falling short and an iniquitous market is developing in its place.


New things technology, science, engineering

Ad mad
Advertising businesses boomed as people stayed home and shopped online during the pandemic. The trend surprised media executives who had spent most of the past year telling their boards that the future lies in digital subscriptions. Even exercise-bicycle companies became subscription-based. “The venture capital world spent a decade betting against advertising, and it’s about to blow up in their faces,” said the chief executive of Bustle, which owns video-content company Mic and online-magazine Nylon. But there are strong reasons to be cautious about this trend. Google and Facebook still dominate the advertising market – some 87 per cent of all online advertising revenue goes to the big tech firms – and it’s unclear whether the boom will outlast the Covid restrictions which are still keeping people at home.


Belonging identity, society, beliefs, countries

Assassination apology
The leader of Sinn Féin, once the IRA’s political wing, apologised for the 1979 assassination of Prince Philip’s uncle, Louis Mountbatten. A day after Prince Philip’s funeral, Mary Lou MacDonald said: “Of course, I am sorry that happened; of course, that is heartbreaking.” Mountbatten was killed when IRA members detonated a bomb on his fishing boat off the coast of Ireland. It was one of the highest-profile attacks during the Troubles. MacDonald said that the British Army committed violent attacks in Northern Ireland, but added that it was “all our jobs to ensure that no other child, no other family, no matter who they are, suffers the same trauma and heartbreak that was all too common on all sides of this island and beyond”. Over the past few weeks, Belfast has seen rioting and violence amid tensions over Brexit-related economic barriers between Northern Ireland and the rest of the UK.


The week ahead

UK
19/4 – Oliver Dowden, the culture secretary, expected to address the House of Commons over European Super League (see Wealth above); trial begins for former police officers charged over Hillsborough disaster; High Court trial begins for English Defence League founder ‘Tommy Robinson’ sued over comments made about Syrian refugee Jamal Hijazi, 20/4 – High Court holds hearing over historic tank debt which Iran believes it is owed by Britain, 21/4 – public hearings begin in inquiry into undercover policing in English and Welsh forces; Social Mobility Commission releases report on the social make-up of the civil service, 22/4 – Stephen Lawrence Day; Public Accounts select committee holds three-part session on collapsed financial firm Greensill, 23/4 – former Met Police officer Ben Hannam sentenced after being found guilty of being a member of a neo-Nazi group

World
19/4 – Nasa’s Ingenuity Mars helicopter attempts first controlled flight on another planet, 20/4 – European Medicines Agency set to announce conclusions on safety of Johnson & Johnson Covid vaccine; Reporters Without Borders releases annual Press Freedom Index, 21/4 – Russian president Vladimir Putin gives annual address to lawmakers; Joe Biden delivers remarks on state of vaccinations; Internet Watch Foundation releases annual report, including confirmed reports of child sex abuse imagery, 22/4 – funeral of Daunte Wright, the 20-year-old Black man shot dead by a police officer in Minnesota; Johnson & Johnson holds annual shareholders meeting; climate activist Greta Thunberg appears before US House committee hearing on fossil fuel subsidies, 23/4 – US Centers for Disease Control and Prevention holds emergency meeting on Johnson & Johnson vaccine, 24/4 – 106th anniversary of Armenian Genocide; international conference on Afghanistan, co-hosted by UN, Turkey, and Qatar, begins in Istanbul, 25/4 – Albania holds parliamentary elections

Thanks for reading, and do share this around.

Paul Caruana Galizia
@pcaruanagalizia

Photographs by Getty Images


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