The year 2020 marks the start of a new decade, but economically wise it starts with a fragile growth outlook, social tensions over the polarization of economic outcomes, and high levels of uncertainty. Signs of policy agility and business reform may give rise to a different, preferable economic growth, but that's far from being adequate, according to a report released by the World Economic Forum (WEF) in early January.

The report is written by leading Chief Economists from both the public and private sectors, under the organization by the WEF's Platform for Shaping the Future of the New Economy and Society. 

Fragile growth outlook 

The current challenges are enormous, with trust in institutions eroded and policy-making getting more and more responsive to "single issues or brinkmanship." That has led to less dependable policy actions with the trade policy in particular, according to the report.

Traditional policy mechanisms are no longer reliable in that the core elements of monetary and competition policy used before to soothe negative shocks or build up positive economic momentum are losing vitality, when interest rates in major currency areas settling at close to zero. The new growth driver of the digital economy has also left competition authorities with an outdated toolkit.

Structural reforms to enable the transition towards a new economy are revealing delicate trade-offs between the digital and green transformations. France underwent violent demonstrations and social unrest following its attempt to abate carbon emissions via fuel tax growth.  

"The transition as it is currently happening is proving to be costly for low-income groups and risks feeding the trend of growing income inequality. Two potential shocks to the economy in 2020 include extreme weather events and imposition of new trade barriers, both of which could further affect low-income groups disproportionately," says the report.

Global convergence of per capita incomes has been standing still, with digital leapfrog models failing to deliver satisfying growth results for low-income countries and a new middle-income trap being on the horizon in some emerging economies. 

Call for strengthened momentum 

There are signs of policy agility and business reform that may lead to a different, better kind of economic growth, but this momentum needs strengthening, says the report. 

Thanks to OECD's multi-year efforts over reigning in tax base erosion and profit shifting, a brand new, fairer corporate tax structures appear to be around the corner, offering more fiscal space to countries and ensuring that digital companies contribute a fair share. 

This also provides governments with more flexibility in expediting the transition to the new economy via jacking up expenditure on urgent needs from the likes of "workforce skilling and stronger social safety nets." 

People tend to hold the view that improvement has been made in macro-prudential frameworks after the 2008 global financial crisis, making the financial sector more resilient to shocks, but there is no denying that the current framework has yet to be challenged by a crisis. 

In light of the new needs arising in the next decade, worldwide policy-makers may embrace more chances of incentivizing the direction of growth, giving priority to areas such as green infrastructure, education, and care. 

Focus on fiscal and competition policy 

Policy makers and business leaders should in 2020 show solicitude for tweaks in fiscal and competition policies and cast about for ways to implement fair green and digital transition, the report says. 

New fiscal flexibility will be required to find a "new balance between monetary and fiscal policy," thereby making up for "the depletion of both traditional monetary policy tools and quantitative easing."  

The report mentioned advanced economies may embrace enough fiscal space, but it is to some extent dependent on the accommodative monetary policy, where China is heading with plans for fiscal stimulus, including tax cuts and more local government spending. 

Social safety nets also need to be updated, subject to pressure caused by adverse demographics in high-income countries and emerging economies, as well as from extremely low or negative interest-rate environments.  

"Work volatility in the digital economy can be expected to increase, with more frequent job transitions for workers that will need to be supported and actively facilitated by both policy and business action," according  to the report. 

The report also pointed out that transition to a greener economy will greatly circumscribe consumption and resulting costs. That needs to be "acknowledged and addressed."