Global economy at risk of ‘dangerously dividing’ even as growth booms


(Bloomberg) – The global economy is on track for its fastest growth in more than half a century this year, but differences and shortcomings could prevent it from reaching its peak anytime soon. ‘before the pandemic. This week’s semi-annual virtual meeting of the International Monetary Fund, injecting billions 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 as it begins to withdraw some of its economic aid. Yet, unlike the 2008 financial crisis, the recovery appears patchy, in part because vaccine deployment and fiscal support differ from country to country. Among the laggards are most emerging markets and the eurozone, where France and Italy have extended activity restrictions to contain the virus.

“While the outlook has generally improved, the outlook diverges dangerously,” IMF Managing Director Kristalina Georgieva said last week. “Vaccines are not yet available for everyone and everywhere. Too many people continue to face job losses and growing poverty. Too many countries are falling behind. “

The result: It could take years for parts of the world to join the United States and China to fully recover from the pandemic. By 2024, global production will still be 3% lower than projected before the pandemic, with countries dependent on tourism and services being those who will suffer the most, according to the IMF.

The disparity is taken into account by Bloomberg Economics’ current new series of issues, which shows global growth of around 1.3% quarter on quarter in the first three months of 2021. But as the United States rebounds , France, Germany, Italy, UK and Japan are contracting. . In emerging markets, Brazil, Russia and India are all clearly overtaken by China.

For the full year, Bloomberg Economics is forecasting growth of 6.9%, the fastest all-time high in the 1960s. Behind the favorable outlook: A declining viral threat, an expanding US stimulus and billions of dollars. 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 the virus remains of an international threat, especially if new variants develop. Bloomberg’s Vaccine Tracker shows that while the United States has administered doses equivalent to nearly 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 official Nathan Sheets said he expects the United States to use this week’s virtual meetings of the IMF and World Bank to argue that it is not the time for countries to give up helping their economies.

This is an argument that will mainly be directed towards Europe, in particular Germany, with its long history of budgetary austerity. The EU’s 750 billion euro ($ 885 billion) EU stimulus fund will only start in the second half of the year.

The United States will have two things to do in its cause, Sheets said: a strengthening of the national economy and an internationally respected leader of her delegation to Treasury Secretary Janet Yellen, who is not foreign to IMF meetings since she was president of the Fed. the larger economy could find itself on the defensive when it comes to vaccine distribution after building up massive supplies for itself. “We will hear a shade and a cry emerge during these meetings for more equal access to vaccinations,” said Sheets, who is now head of global economic research at PGIM Fixed Income.

And while the booming US economy will undoubtedly act as an engine for the rest of the world in sucking up imports, there could also be grunts about higher borrowing costs in the market than growth. fast leads, especially in economies that are not so healthy. “Biden’s stimulus is a double-edged sword,” said former IMF chief economist Maury Obstfeld, who is now a senior researcher at the Peterson Institute for International Economics in Washington. Rising long-term interest rates in the United States are “tightening global financial conditions. This has implications for the debt sustainability of countries that have taken on increasing debt to fight the pandemic. Bruce Kasman, chief economist of JPMorgan Chase & Co., said he had not seen such a large gap in 20 to 25 years in the expected outperformance of the United States and other developed countries compared to to emerging markets. This is in part due to the differences in the distribution of the vaccine. But it is also due to the economic policy choices made by various countries: after mainly cutting interest rates and launching asset purchase programs last year, central banks are separating, with some of the emerging markets starting to fall. raise interest rates either because of accelerating inflation or to prevent capital from draining. Turkey, Russia and Brazil all increased their borrowing costs last month, while the Fed and the European Central Bank say they won’t do so for a long time.

Rob Subbaraman, head of global market research at Nomura Holdings Inc. in Singapore, believes Brazil, Colombia, Hungary, India, Mexico, Poland, Philippines and South Africa are all at risk. to have policies that are too loose.

“While the major central banks in developed markets are experimenting with how well they can handle economies before inflation becomes a problem, central banks in emerging markets will need to be very careful not to fall behind, and will likely need to lead. , rather than following developed market counterparts in the next cycle of rate hikes, ”Subbaraman said.

In an April 1 video for customers, Kasman summed up the global economic outlook as follows: “Boomy-like conditions with some pretty big divergences.”

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