The world economy is on track for its fastest growth in more than half a century this year, but differences and shortcomings may prevent it from reaching its pre-pandemic peak anytime soon.
The United States is leading the attack on this week’s half-yearly virtual meeting of the International Monetary Fund, injecting trillions of dollars of budgetary stimulus and resuming its role as guardian of the global economy after the defeat of President Joe Biden of “America First” President Donald Trump. Friday brought news of the biggest hiring month since August.
China is also doing its part, building on its success in the fight against the coronavirus last year, even when it starts to withdraw some of its economic aid.
However, unlike the 2008 financial crisis, the recovery seems unbalanced, in part because vaccine distribution and fiscal support differ across borders. Among the arrears are most of the emerging markets and the euro area, where France and Italy have tightened restrictions on activity to contain the virus.
“Although the general outlook has improved, the outlook is diverging dangerously,” said IMF managing director Kristalina Georgieva last week. “Vaccines are not yet available to everyone and everywhere. Many people continue to face job losses and rising poverty. Many countries are lagging behind. “
[Bloomberg]
The result: it may take years for parts of the world to join the United States and China in total recovery from the pandemic. In 2024, world production will still be 3% less than projected before the pandemic, with countries that depend on tourism and services suffering more, according to the IMF.
The disparity is captured by Bloomberg Economics’ new set of forecasts, which show global growth of around 1.3% quarter-on-quarter in the first three months of 2021. But while the US is recovering, France, Germany, Italy, the UK United Kingdom and Japan are contracting. In emerging markets, Brazil, Russia and India are all clearly being overtaken by China.
For the year as a whole, Bloomberg Economics projects growth of 6.9%, the fastest in records dating from the 1960s. Behind the optimistic outlook: a shrinking virus threat, expanding US stimulus and trillions of dollars in repressed savings.
Much will depend on how quickly countries can inoculate their populations, with the risk that the longer it takes, the greater the chance that the virus will remain an international threat, especially if new variants develop.
Bloomberg’s Vaccine Tracker shows that while the United States has administered doses equivalent to almost a quarter of its population, the European Union has yet to reach 10%, while rates in Mexico, Russia and Brazil are below 6%. In Japan, the number is less than 1%.
“The lesson here is that there is no trade-off between growth and containment,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd.
[Bloomberg]
Former Federal Reserve official Nathan Sheets said he hoped the US would use this week’s virtual meetings of the IMF and World Bank to argue that now is not the time for countries to step back in helping their economies.
It is an argument that will be addressed mainly to Europe, particularly Germany, with its long history of fiscal rigor. The EU’s 750 billion euro ($ 885 billion) joint recovery fund will not start until the second half of the year.
The United States will have two advantages in presenting its case, Sheets said: A strengthening of the domestic economy and an internationally respected leader of his delegation at the Treasury secretary, Janet Yellen, familiar with the IMF meetings since his time as Fed chairman. economics can be on the defensive when it comes to vaccine distribution after accumulating massive supplies for itself. “We will hear screams and calls during these meetings for more equal access to vaccines,” said Sheets, who is now the head of global economic research at PGIM Fixed Income.
And while America’s booming economy undoubtedly works as a driver for the rest of the world, sucking in imports, there may also be some complaints about the higher costs of market loans that rapid growth brings, especially from economies that are not. so healthy.
“The Biden stimulus is a double-edged sword,” said former IMF chief economist Maury Obstfeld, who is now a senior member of the Peterson Institute for International Economics in Washington. The rise in long-term interest rates in the USA “tightens global financial conditions. This has implications for the debt sustainability of countries that have become increasingly indebted to fight the pandemic ”.
JPMorgan Chase & Co. Chief Economist Bruce Kasman said he has not seen such a gap in 20 to 25 years in the expected outperformed performance of the US and other developed countries 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 several countries are making.
After mainly cutting interest rates and starting asset buying programs last year, central banks are splitting up with some of the emerging markets that are starting to raise interest rates because of accelerated inflation or to keep capital out . Turkey, Russia and Brazil increased borrowing costs last month, while the Fed and the European Central Bank say they won’t be doing that for long.
[Bloomberg]
Rob Subbaraman, head of global markets research at Nomura Holdings Inc. in Singapore, assesses that Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa are at risk of applying overly flexible policies.
“With leading central banks in developed markets experiencing how heated they can manage economies before inflation becomes a problem, emerging market central banks will need to be extremely careful not to fall behind the curve, and will likely need to lead, in instead of following, its developed market counterparts in the next rate hike cycle, ”said Subbaraman.
In an April 1 video for clients, Kasman summed up the global economic landscape as follows: “Boomy conditions with very wide divergences”.