The world economy is on its way to its fastest growth in more than half a century this year, yet differences and shortcomings may deter it from reaching its pre-pandemic heights soon.
The US is leading the charge to the International Monetary Fund’s semi-annual virtual meeting this week, which is pumping trillions of dollars of budget stimulus and resuming its role as guardian of the world economy following President Joe Biden’s defeat of US President Donald. Trump. Friday brought news of the biggest month for rent since August.
China is also doing its part and building on its success in counteracting the coronavirus last year, even as it begins to withdraw from some of its economic aid.
However, in contrast to the aftermath of the 2008 financial crisis, the recovery seems skewed, in part because vaccine deployment and fiscal support differ across borders. Among the laggards are most emerging markets and the eurozone, where France and Italy have expanded restrictions on activity to curb the virus.
“While the outlook has generally improved, the outlook differs dangerously,” Kristalina Georgieva, IMF managing director, said last week. “Vaccines are not yet available to everyone and everywhere. Too many people continue with job losses and increasing poverty. Too many countries are lagging behind. ”
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The result: it could take years for the world groups to join the US and China to fully recover from the pandemic. According to the IMF, by 2024 world production will still be 3% lower than predicted before the pandemic, with countries dependent on tourism and services.
The differences are captured by Bloomberg Economics’ new series of new broadcasts, which show global growth of around 1.3% on a quarterly basis in the first quarter of 2021. But while the US is bouncing, France, Germany, Italy, the UK and Japan are contracting. . In emerging markets, Brazil, Russia and India are all clearly overtaken by China.
For the full year, Bloomberg Economics forecasts growth of 6.9%, the fastest record dating back to the 1960s. Behind the living prospects: a shrinking virus threat, the expansion of the US stimulus and trillions of dollars in pent-up savings.
Much will depend on how quickly countries can vaccinate their populations with the risk that the longer the chance of the virus remaining an international threat, especially as new variants develop.
Bloomberg’s Vaccine Tracker shows that although the US has administered doses equivalent to almost a quarter of its population, the European Union has achieved another 10%, while rates in Mexico, Russia and Brazil are below 6%. . In Japan, the figure is less than 1%.
“The lesson here is that there is no compromise between growth and constraint,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd.
[Bloomberg]
Former Federal Reserve official Nathan Sheets said he expected the US to use the IMF and World Bank virtual meetings this week to argue that now is not the time for countries to help their economies.
This is an argument that will mostly focus on Europe, especially Germany, with its long history of fiscal austerity. The EU’s Joint Recovery Fund for 750 billion euros ($ 885 billion) will only start in the second half of the year.
The U.S. will be planning two things to state its case, Sheets said: a strengthening domestic economy and an internationally respected leader of its delegation to the Treasury, Janet Yellen, is no stranger to IMF meetings from her time as Fed chairman. But the world’s largest economy could find itself on the defensive when it comes to distributing vaccines after accumulating large supplies for itself. “We will come up with a tint and cry during these meetings for more equal access to vaccinations,” said Sheets, who now heads global economic research at PGIM Fixed Income.
And while America’s booming economy will undoubtedly be a driver for the rest of the world by sucking in imports, there may also be a grumble about the higher borrowing costs in the market that are driving the rapid growth, especially from economies that are not so healthy is not.
“The Biden stimulus is a double-edged sword,” said former IMF economist Maury Obstfeld. He is currently a senior fellow at the Peterson Institute for International Economics in Washington. Rising US long-term interest rates exacerbate global financial conditions. This has implications for the sustainability of debt for countries that have taken on deeper debt to fight the pandemic. ”
JPMorgan Chase & Co., chief economist Bruce Kasman, said he had not seen such a large gap in the expected performance of the US and other developed countries over the past 20 to 25 years compared to emerging markets. This is partly due to differences in the distribution of the vaccine. But it also depends on the economic policy choices that different countries make.
As interest rates have mostly declined over the past year and asset buying programs have begun, central banks are parting ways with some in emerging markets starting to raise interest rates, either due to accelerated inflation or to prevent capital outflows. Turkey, Russia and Brazil all increased borrowing costs last month, while the Fed and the European Central Bank say they will not do so for a long time.
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Rob Subbaraman, Head of Global Market Research at Nomura Holdings Inc. In Singapore, Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa are at risk of excessive policies.
‘Central banks experimenting in the developed market on how hot they can manage their economies before inflation becomes a problem’s, central banks in the emerging market will have to be extra careful not to fall behind the curve, and will likely develop their peers from the market in the next rate-step cycle, ”said Subbaraman.
In a video for clients from April 1, Kasman summarized the global economic outlook as follows: “Tree-like conditions with fairly wide deviations.”