National Institute Economic Review

Introduction: Global value chains and economic dislocations

The world is undergoing an unprecedented shock as a result of the Covid-19 pandemic and the resulting lockdowns in nearly all economies. As major world economies are being put on hold, millions of jobs and incomes are being lost, which has created an imperative for economic policy actions. Government healthcare responses have so far been aimed at containment with measures aimed at slowing the rate of infection and limiting social and work-related interactions, accompanied by fiscal and monetary policies to support businesses and protect people’s incomes.

Prospects for the World Economy

  • The effects of the coronavirus pandemic and the control measures taken to combat its spread have changed the short-term global economic outlook in an unprecedented manner from that forecast just three months ago.
  • In these highly uncertain times, we now expect widespread falls in GDP, particularly in the first half of this year, as the lockdowns pause many forms of economic activity. Our outlook scenario assumes that the measures to control movement and social contact will be eased gradually, permitting a wider range of economic activities to be undertaken as 2021 dawns.

Prospects for the UK Economy

  • Measures to limit the spread of Covid-19 are causing a severe contraction in economic activity of uncertain magnitude. In our main-case scenario, GDP falls by 7 per cent in 2020 and public sector borrowing rises above £200 billion in 2020–21, over £150 billion more than in the OBR's forecast at budget time.
  • The government’s announced measures to limit the long-term economic effect of Covid-19 are estimated to add about £75 billion to the deficit in our main-case scenario. It is estimated that without these measures GDP would have fallen by a further 2 per cent.

US and UK Labour Markets Before and During the Covid-19 Crash

We examine labour market performance in the US and the UK prior to the onset of the Covid-19 crash. We then track the changes that have occurred in the months and days from the beginning of March 2020 using what we call the Economics of Walking About (EWA) that shows a collapse twenty times faster and much deeper than the Great Recession. We examine unemployment insurance claims by state by day in the US as well as weekly national data.

Economic Crisis: Virtual Special Issue

Our latest "virtual issue" of our Economic Review focussing on Economic Crisis

 

Is the UK Productivity Slowdown Unprecedented?

We estimate trend UK labour productivity growth using a Hodrick-Prescott filter method. We use the results to compare downturns where the economy fell below its pre-existing trend. We find that the current productivity slowdown has resulted in productivity being 19.7 per cent below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity shortfall ten years after the start of a downturn. On this criterion the slowdown is unprecedented in the past 250 years.

Does intellectual property rights protection constitute a barrier to renewable energy? An econometric analysis

This study uses an econometric approach to investigate the role of IPR protection on renewable energy adoption using panel data of 102 countries at five-year intervals over the period 1990–2005. The Ginarte-Park index is used as a measure of the strength of intellectual property protection while the adoption of renewable energy is measured by the share of renewable energy in total final energy use.

Stranded Assets and Sovereign States

There is evidence that the risk of stranded assets in the oil and gas sector is underpriced in financial markets. Publicly traded Western oil and gas companies are starting to write down assets, opening up the possibility that more rationalisation of value is likely to come. To the extent that large oil companies diversify portfolios to include cleaner energy and carbon sequestration technologies, it could reduce the risk of a sudden cascading change in the stock valuation of these firms and related bond and credit markets.

The Changing Role of Carbon Pricing in the EU

Carbon pricing has been the most prominent climate change mitigation policy for the EU since the launch of its emissions trading system (ETS) in 2005. Since then, the context of international climate policy as well as of the socio-political and economical context of decarbonisation has changed considerably. The 2015 Paris Agreement engages virtually every country unlike its predecessor, while non-carbon pricing policies have led to rapid cost reductions in renewables, even if other sectors (particularly in energy-intensive industry) have not seen similar developments.

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