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Economies should prioritise exports in rebuild drive

A focus on getting domestic consumption back on even keel takes longer to realise

Domestic consumption alone cannot drive economic growth and recovery. For argument’s sake, let us assume that an economy drives most of its growth from domestic consumption.

In normal times, the economy would enjoy balanced domestic supply and demand, with production capacity that can offset spikes in the latter. Prices will be decided at whatever point demand and supply intersect, and we will have a textbook case economy.

Enter COVID-19…

Supply drops because of sickness and demand goes down, or ceases to exist altogether, because of lockdowns. Thus, prices drop to lower demand-supply intersection points. Overall, this would mean a reduction in economic activity and a slowdown in growth.

This is when a government intervention is permitted under the Keynesian school of thought, with increased government spending that will promote consumption by other sectors in the economy. Government spending will also need to target activities that would minimise job loss – hence unemployment – as well as activities that will hasten economic recovery post COVID-19.

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