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This time, a K-shaped recovery on a global scale

The global economy is recovering from the coronavirus pandemic faster than previously expected, largely due to the power of the United States. However, the International Monetary Fund warned on Tuesday that uneven deployment of vaccines poses a threat to recovery due to the different fate of rich and poor countries.

Global dynamics reflect the “K-shaped” recovery that is taking place around the world. While many wealthy nations are ready for major economic expansion this year, the struggles of others could reverse decades of progress in the fight against poverty. This week, top officials in the international economy warned that this difference, amplified by delayed vaccine deployment in developing countries, poses a threat to stability and long-term growth.

“Economic luck across the country and across countries is dangerously divergent,” IMF Managing Director Christalina Georgieva said in a panel discussion at the Fund’s and World Bank’s annual Spring Meeting on Tuesday. Said.

In a speech this week, Treasury Secretary Janet Yellen said that the inability of low- and middle-income countries to invest in strong vaccination programs “could lead to a pile of debt problems, a deeper and longer-lasting crisis.” Said. Persistent poverty and growing inequality. ”

Concerns over growing inequality were highlighted as the IMF said on Tuesday that it would improve its forecast for global economic growth this year thanks to vaccinations of hundreds of millions of people. Currently, the global economy is expected to grow 6% this year, up from the previous forecast of 5.5%, after shrinking 3.3% in 2020.

The wealthiest countries, especially the United States, are projected to grow by 6.4% in 2021. The euro area is projected to grow 4.4% and Japan to grow 3.3%. According to the IMF.

Among emerging markets and developing countries, China and India are expected to drive growth. China’s economy is projected to grow by 8.4%, significantly boosting global growth and India’s economy is projected to grow by 12.5%.

However, in developed countries, unskilled workers are hit hardest and unemployed people may find it difficult to replace them. And low-income countries face greater losses in economic production than developed countries, reversing the benefits of poverty reduction and endangering the long-term scars of the pandemic era.

Emerging market economies often have less resources for fiscal stimulus, vaccine investment, and workforce retraining. This is a factor that poses the risk of a late deadlock when the world begins to recover.

The fact that big powers like the United States are accelerating can exacerbate the pain if their growth is severely slowed. Stronger US growth prospects are already pushing up market-based interest rates on US government debt. When that happens, it attracts capital from abroad, making borrowing more expensive in already weak economies and endangering currency volatility.

In a recent blog post, IMF researchers pointed out that it is important for the US debt rate to rise as the economic outlook strengthens. This will benefit many economies by stimulating export demand. Still, “countries with low exports to the United States and high reliance on foreign borrowing can be stressed by financial markets.”

Most US officials have focused on how strong domestic growth actually helps other parts of the world when US consumers buy foreign goods and services. “This year, the United States is expected to become the locomotive of the world economy,” Federal Reserve Board of Governors Vice-Chair Richard Clarida said in a recent speech.

Yellen had a similar discussion in a panel discussion at the IMF on Tuesday, where she urged countries not to give up financial support.

“The strong growth of the United States will positively spill over into the global outlook, and we will carefully learn the lessons of the financial crisis that we will not withdraw support too soon,” she said.

There is a risk that the spillover will work in reverse. Slow progress in vaccination abroad will weigh on improvements in the United States and the world. Based on the New York Times vaccination data, about 500 vaccines are given per 1,000 people in the United States, compared to about once per 1,000 people in Mali and Afghanistan.

Monica de Balle, a senior researcher at the Peterson Institute for International Economics, who studies emerging markets, said that a large area of ​​the world, including parts of South America and Africa, will reach widespread vaccination after 2023. Said that it could take. Economist Intelligence Unit.

“Currently, there is competition between these variations of concern and vaccines,” she said at a webcast event on Tuesday. She urged “global cooperation and attention” on how inequality in vaccine distribution affects inequality and economic recovery.

The IMF agrees. Victor Gaspar, director of finance for the fund, said developed countries will continue to be at risk even if the virus is rampant in developing countries that are not major economies, until the virus is eradicated everywhere. He said it could not be eradicated anywhere. That’s why investing in vaccination is important, he said.

“Global vaccination is probably the most profitable global public investment ever considered,” Gaspar said in an interview. “Vaccination policy is an economic policy.”

Some Wall Street economists are taking a more optimistic tone, while global policymakers warn of the difference between growth and public health outcomes.

“I think market participants underestimate the potential pace of improvement in both public health and economic activity for the rest of 2021,” said Jan Hatzius of Goldman Sachs on April 5. I wrote in my research note.

Vaccinations are high or ongoing in Canada, Australia, the United Kingdom, and the Euro region. In emerging markets, Goldman economists predict that by the end of the year, 60% to 70% of the population will have “at least some degree of immunity,” counting previous coronavirus infections and vaccine growth, Hatzius said. I am writing.

“The delay is in China and other Asian countries, mainly because Asia is very successful in controlling the virus,” he writes.

How fast the global recovery will go can be important to the policy outlook, both in government spending and central bank financial support.

From the Federal Reserve to the European Central Bank and the Bank of Japan, financial authorities have adopted a combination of solid interest rates, huge bond purchases and other emergencies to mitigate the effects of the pandemic.

Organizations reiterate Yellen’s comments: they argue that it is important to anticipate recovery rather than withdraw financial assistance early.

“In general, we believe that the risks to financial stability associated with the early withdrawal of support measures are greater than the risks associated with the late withdrawal,” said the Federal Reserve Board of Governors. Randal Quarles, vice-chairman of oversight and head of the World Financial Stability Board, said. A letter released on Tuesday.

The IMF said Tuesday that it is paying attention to US interest rates, which could pose financial risk if the Fed raises interest rates unexpectedly. He also called on countries to maintain targeted financial support and be prepared to provide more in the event of a future wave of the virus.

Gitagopinato, Chief Economist at the IMF, said:

This time, a K-shaped recovery on a global scale

Source link This time, a K-shaped recovery on a global scale

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