Photographer: Billy HC Kwok / Bloomberg
Photographer: Billy HC Kwok / Bloomberg
Discover what’s moving the world economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify of Pocket Cast.
The world economy is on track for its the fastest growth in more than half a century this year, yet differences and shortcomings may deter it from reaching 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 news brought from the largest month for rent since August.
China is also did its part and built on its success in counteracting the coronavirus last year, even as it began to withdraw from some of its economic aid.
But unlike in the aftermath of the financial crisis in 2008, the recovery seems skewed, in part because the vaccine deployment and fiscal support differ across borders. Among the backlogs are most emerging markets and the euro area, where France and Italy are extensive restrictions on activity to contain the virus.
‘While the prospects overall, the outlook is dangerously diverse, ”Kristalina Georgieva, IMF’s 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. ”
Clearer trading prospects
The WTO expects trade to recover by 8% in 2021 and by 4% in 2022
Source: World Trade Organization
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 difference is captured by the new series Bloomberg Economics nowcasts which in the first three months of 2021 show a worldwide growth of about 1.3% on a quarterly basis. But while the US is bouncing, France, Germany, Italy, the UK and Japan are pulling together. 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 Vaccine Tracker shows that although the US has administered doses equivalent to almost a quarter of its population, the European Union has not yet achieved 10% and that rates in Mexico, Russia and Brazil are less than 6%.
“The lesson here is that there is no compromise between growth and constraint,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd.
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 be directed against 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 US will consider two things to state its case, Sheets said: A strengthening the domestic economy and an internationally respected leader of his delegation to Treasury Secretary Janet Yellen, no stranger to IMF meetings of her time as Fed chair.
But the largest economy in the world could find itself on the defensive vaccine distribution after the collection of massive supplies for himself. “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 although America’s booming economy will undoubtedly act as a a driving force for the rest of the world by sucking in imports, there can also be grumbling about the higher borrowing costs in the market that are driving the rapid growth, especially from economies that are not so healthy.
“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.
Central banks have mostly lowered interest rates and started asset-buying programs last year, and some in emerging markets have begun to increase interest rates 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.
Price decisions 2021
Turkey, Russia and Brazil all increased borrowing costs last month
Source: Bloomberg
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 with 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 probably have to take their lead rather than following it. develop peers in the market at the following rate step bicycle, ”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.”
– With help by Eric Martin