Nations begin to shape post-Covid-19 economy amid divergent fortunes

WASHINGTON – The world’s top economic officials plan to focus on a virtual meeting this week on the prospect of new variants and closings of Covid-19 undermining the global recovery, while evaluating measures to prevent lasting damage to the poorest and most vulnerable populations.

The international economy is recovering faster than many economists projected weeks ago, driven by growth in the US and China and the fast pace of vaccination in many wealthy countries. However, a new wave of blockages – from Europe to Canada – is threatening this growth, as many low- and middle-income nations with limited resources are left behind.

“The window of opportunity is closing fast,” said Kristalina Georgieva, managing director of the International Monetary Fund, co-host of the World Bank meeting, in previewing the problems faced by central bankers and finance ministers. “The longer it takes to speed up the production and implementation of the vaccine, the more difficult it will be to achieve these gains,” she said.

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In a report to be released on Tuesday, the IMF plans to raise its global growth forecast for this year from the 5.5% expansion projected in January, Georgieva said in its presentation on Wednesday. This would follow an estimated contraction of 3.5% in 2020, the worst result in peacetime since the Great Depression.

The annual spring meeting of the IMF and the World Bank will be held virtually from 5 to 11 April, bringing together policymakers from the Group of 20 and others. The response to the pandemic, including the distribution of vaccines and aid to distressed nations, is expected to dominate the talks this year. The authorities will also discuss ways to rebuild the global economy, with a particular focus on strengthening resilience against climate change.

The ongoing recovery is largely the result of about $ 16 trillion in fiscal stimulus and liquidity injections from governments and central banks, mainly in rich countries, the IMF said. The US government alone has pledged about $ 5 trillion in stimulus spending since the pandemic began.

The IMF in January projected growth of 5.1% this year in the US, but private analysts have since increased their projections to 7% or more after the enactment in March of a new $ 1.9 trillion stimulus package. China, which most quickly controlled the pandemic to resume production and exports, saw growth of 8.1%.

At the same time, an increasing risk to economic prospects is the emergence of virus variants. Three first identified in the UK, South Africa and Brazil have since spread across the globe. They all share worrying characteristics that threaten to undo progress in fighting the pandemic if the virus is not controlled.

The researchers say there is compelling evidence that these variants and their descendants are more transmissible than older versions of the pathogen. They are already generating new outbreaks and public health responses that hinder growth. The UK is only now beginning to ease its way out of a blockade that has been in place since January. French President Emmanuel Macron announced a new national blockade last week, citing outbreaks of cases attributed to these more infectious variants.

In Canada, Ottawa had a record number of cases on Saturday, and Ontario maintains restrictions that close restaurants, gyms and personal care services for weeks. Brazil and India registered sharp increases in cases.

In the United States, states are easing restrictions as the vaccine’s release accelerates. But with the increase in the number of new cases, partly because of variants, the authorities warned of a possible increase.

Some laboratory studies have suggested that the current vaccine crop may lose some of its potency when confronted with the variants of South Africa and Brazil, especially. The concern is that the virus will happen with new mutations that may help it to escape the immunity acquired by the vaccine and to seed new outbreaks that lead the governments to close parts of their economies once again.

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Scientists are largely optimistic that the vaccine technologies that are being deployed against the virus – and our own immune systems – are also able to adapt. Still, the emergence of these variants, say the scientists, reinforces the need to eliminate transmission chains and vaccinate as widely as possible to give the virus less chance of replicating, acquiring new beneficial mutations and coming back in full force.

“This will be like a real-world evolution experiment: can variants beat vaccines?” said Alex Sigal, who leads a team of researchers who have been investigating coronavirus variants at the Africa Health Research Institute in South Africa.

Even before new concerns about variants, global policymakers have been concerned about the growing disparities in the world economy this year. In emerging and developing countries, the Covid-19 crisis has reduced gross domestic product per capita by a fifth – almost double the loss among advanced economies, estimates the IMF. Last year, more than 100 million people, mainly in South Asia, fell into extreme poverty, defined as living on less than $ 1.90 a day. Globally, six million children may drop out of school this year, damaging their prospects for the future, says the IMF.

“Economic fortunes are diverging,” said Georgieva. “Vaccines are not yet available to everyone and everywhere. Many people continue to face job losses and rising poverty. Many countries are lagging behind. “

Money to help poor nations has been limited, as major economies have focused on combating the pandemic and recovering their own economies. The Group of the 20 largest economies has provided $ 5 billion in debt service relief to more than 40 low-income countries, but private sector creditors have not joined the effort. The foreign debt of low-income countries more than doubled between 2010 and 2019, to more than $ 750 billion, according to the Institute of International Finance.

“Rich governments have managed to approve trillions of dollars in stimulus packages for companies, for money transfers to people, vaccines and for education, but what about low and middle income countries?” asked Nadia Daar, head of the Washington office of Oxfam International. “The financial response that the world provided was simply not enough.”

To tackle the problem without increasing that burden, the IMF proposed issuing $ 650 billion in Special Drawing Rights, an international reserve asset that countries can exchange for dollars or other major currencies to cover their obligations. Critics say it is an inefficient way to help poor nations because most of the SDRs would be given to rich countries that are the IMF’s largest shareholders. Republican lawmakers in the U.S. also say the broadcast could help repressive regimes and state-sponsored terrorism.

In response to these objections, the U.S. Treasury Department said on Thursday that advanced economies are looking for ways to lend some of their DES to low-income countries. The Treasury also said the United States may refuse to exchange dollars for DES for countries whose policies diverge from US interests.

Concerns are also emerging about the possible negative effects of massive stimulus spending from the United States and other wealthy nations in the developing world. The stimulus could fuel inflation, leading central banks to raise interest rates, thereby increasing the debt burden of countries.

“A big question, common to all economies, is how quickly the stimulus should be withdrawn, what happens when they are withdrawn and whether there will be an increase in bankruptcies,” said Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, in an interview. She added that, so far, the global economy has shown tremendous resilience.

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Federal Reserve Chairman Jerome Powell said he does not expect a change in the central bank’s easy monetary policy any time soon. Even so, the yield on the 10-year reference Treasury note was 1.72% at the end of last week, compared to 0.91% at the end of last year, in signs of an accelerated economic recovery. It remains low by historical standards.

Rising US yields withdrew capital from emerging markets, putting negative pressure on their currencies, while fueling inflation and fears of future inflation. Last month, Turkish President Recep Tayyip Erdogan sacked the country’s central bank president, who had repeatedly raised interest rates in an effort to control inflation.

– Jason Douglas and Daniela Hernandez contributed to this article.