The global economy is on track for the fastest growth in more than half a century this year, but differences and shortcomings could keep it from reaching its pre-pandemic heights anytime soon.
The US is leading the charge into this week’s semi-annual virtual meeting of the International Monetary Fund, pumping trillions of dollars in fiscal stimulus and resuming its role as guardian of the global economy following President Joe Biden’s defeat 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 fighting the coronavirus last year, even though it is starting to withdraw some of its economic aid.
But unlike the aftermath of the 2008 financial crisis, the recovery looks skewed, in part because vaccine rollouts and fiscal support differ across borders. The laggards include most of the emerging markets and the euro area, where France and Italy have expanded restrictions on operations to contain the virus.
“While the outlook has generally improved, the outlook is dangerously divergent,” Kristalina Georgieva, director of the IMF, said last week. “Vaccines are not yet available for everyone and everywhere. Too many people are still faced with job losses and increasing poverty. Too many countries are lagging behind. “
[Bloomberg]
The result: It could take years for parts of the world to join the US and China to fully recover from the pandemic. By 2024, world production will still be 3% lower than predicted before the pandemic, with countries dependent on tourism and services suffering the most, according to the IMF.
The inequality is cushioned by Bloomberg Economics’ new series of nowcasts, which show global growth of about 1.3% quarter-on-quarter in the first three months of 2021. But as the US bounces, France, Germany, Italy, the US are shrinking. UK and Japan. . In emerging markets, Brazil, Russia and India are all clearly outdated by China.
For the full year, Bloomberg Economics forecasts growth of 6.9%, the fastest in records dating back to the 1960s. Behind the vibrant outlook: a diminishing virus threat, increasing US stimulus packages and trillions of dollars in pent-up savings.
Much will depend on how quickly countries can inoculate their populations with the risk that the longer it takes, the more likely the virus is to remain an international threat, especially if new variants emerge.
Bloomberg’s Vaccine Tracker shows that while the US has administered doses equal to nearly a quarter of the population, the European Union has not yet reached 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 trade-off between growth and control,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore Ltd.
[Bloomberg]
Former Federal Reserve official Nathan Sheets said he expects the US to use this week’s virtual meetings of the IMF and World Bank to argue that now is not the time for countries to withdraw to support their economies.
It is an argument that will mainly focus on Europe, in particular Germany, with its long history of fiscal rigor. The € 750 billion ($ 885 billion) joint recovery fund will not be launched until the second half of the year.
The US will have two things ahead of it in defending its cause, Sheets said: a strengthening domestic economy and an internationally respected leader of their delegation to Treasury Secretary Janet Yellen, no stranger to IMF meetings since her time as Fed chair. . The largest economy could find itself on the defensive when it comes to the distribution of vaccines after accumulating huge supplies for itself. “We will hear a hue and cry emerging at these meetings for more equal access to vaccinations,” 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 motor for the rest of the world by drawing in imports, there may also be some grumbling about the higher borrowing costs in the marketplace that rapid growth is bringing, especially in economies that are not so healthy. to be.
“Biden’s incentive is a double-edged sword,” said former IMF chief economist Maury Obstfeld, who is now a senior fellow at the Peterson Institute for International Economics in Washington. Rising long-term interest rates in the US “are tightening global financial conditions. That has implications for debt sustainability for countries that have gone deeper into debt to fight the pandemic.”
Bruce Kasman, JPMorgan Chase & Co.’s chief economist, said he hasn’t seen such a big gap in the expected outperformance of the US and other developed countries compared to emerging markets in 20 to 25 years. 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.
After mainly cutting interest rates and starting asset purchase programs last year, central banks are splitting up, with some in emerging markets starting to raise interest rates, either because of rising inflation or to prevent capital from flowing out. Turkey, Russia and Brazil raised borrowing costs last month, while the Fed and the European Central Bank say they will not be doing so for a long time.
[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 all at risk of overly dissolute policies.
“With major developed market central banks experimenting with how hot they can run economies before inflation becomes a problem, emerging market central banks will need to be extra careful not to fall behind the curve, and will likely have to lead rather than lead. developed market counterparts in the next interest rate hike cycle, ”said Subbaraman.
In a video for customers on April 1, Kasman summarized the global economic outlook as follows: “Tree-like conditions with quite wide variations.”