Bloomberg
Risks of the world economy ‘Divergent Divergent’, even with the expansion of growth
(Bloomberg) – The world economy is moving towards the fastest growth in more than half a century this year, but differences and deficiencies may prevent it from reaching its pre-pandemic levels soon. The US is leading the charge for this week’s semiannual virtual meeting of the International Monetary Fund, pumping trillions of dollars of budgetary stimulus and resuming its role as guardian of the global economy after the defeat of President Joe Biden of President “America First”, Donald Trump . Friday brought news of the biggest hiring month since August. China is also doing its part, building on its success in fighting the coronavirus last year, even as it begins to cut some of its economic aid. In the 2008 financial crisis, the recovery seems unbalanced, partly 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. “While the outlook has generally 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. 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 dependent 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 U.S. is recovering, France, Germany, Italy, UK 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 forecasts 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% and rates in Mexico, Russia and Brazil are less than 6%. “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. Former Federal Reserve employee Nathan Sheets said he expects the US to use the meetings this week’s virtual talks from the IMF and the World Bank to argue that now is not the time for countries to step back in assisting 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 things going for it in defending its cause, Sheets said: A strengthened domestic economy and an internationally respected economy. leader of his delegation at the Treasury secretary, Janet Yellen, familiar with IMF meetings since his time as Fed chairman. But the world’s largest economy may be on the defensive when it comes to vaccine distribution, after accumulating massive supplies for yourself. “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 will undoubtedly act as a driver for the rest of the world, sucking in imports, there may also be some complaints about the higher market borrowing costs 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 combat the pandemic. ”JPMorgan Chase & Co. chief economist Bruce Kasman said he had not seen such a gap in 20 to 25 years in the expected performance of the US and other developed countries when 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. Having mostly cut interest rates and started asset buying programs last year, central banks are splitting up with some in emerging markets that are starting to raise interest rates due to accelerated inflation or to prevent capital from flowing into. outside. Turkey, Russia and Brazil increased borrowing costs last month, while the Fed and the European Central Bank say they will not do so for long. Rob Subbaraman, head of global markets research at Nomura Holdings Inc. in Singapore, assesses 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 much they can warm up economies before inflation becomes a problem, emerging market central banks will need to be extremely careful not to fall behind the curve and will probably need to lead, rather than follow , his colleagues in the developed market in the next rate hike cycle, ”said Subbaraman. In an April 1 video for clients, Kasman summed up the global economic outlook as follows: “Boomy conditions with very wide divergences.” For more articles like this, visit us at bloomberg.comSubscribe now to stay up to date with the most trusted business news source. © 2021 Blo Omberg LP