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The world economy is on its way the fastest growth in more than half a century this year, but differences and shortcomings may prevent it from reaching its pre-pandemic heights soon.
The United States is leading the toll in the International Monetary Fund̵
It’s China it is also doing its part, building on its success in countering the coronavirus last year, even as it began to attract some of its economic aid.
Yet, unlike the effects of the 2008 financial crisis, the recovery seems bilateral, in part because vaccine distribution and fiscal support vary across borders. Among the lagging behind are most emerging markets and the eurozone, where France and Italy have extended restrictions on virus retention activity.
“As long as there is perspective improved overall, the prospects are dangerously different, “said IMF Managing Director Kristalina Georgieva last week. “Vaccines are not yet available to everyone and everywhere. Too many people continue to face job loss and growing poverty. Too many countries are lagging 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, world production will still be 3% lower than predicted before the pandemic, with countries relying on tourism and services suffering the most, according to the IMF.
The discrepancy is captured by the new set of Bloomberg Economics forecasts that show global growth of about 1.3% quarterly in the first three months of 2021. But as the US rebounds, France, Germany, Italy, Britain and Japan are shrinking. In emerging markets, Brazil, Russia and India are clearly ahead of China.
For the full year, Bloomberg Economics forecasts growth of 6.9%, the fastest in the records of the 60s. Behind the floating perspective: a shrinking threat of viruses, an expanding stimulus in the United States and trillions of dollars in accumulated 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. A follow-up of Bloomberg vaccines shows that while the United States has given doses equivalent to almost a quarter of people, the European Union has not yet reached 10%, and the rates in Mexico, Russia and Brazil are below 6%.
“The lesson here is that there is no trade-off between growth and restraint,” said Mansour Mohi-udin, chief economist at Bank of Singapore Ltd.
Former Federal Reserve employee Nathan Sheets said he expects the United States to use virtual meetings between the IMF and the World Bank this week to argue that now is not the time for countries to withdraw from cooperating with their economies.
This is an argument that will be mostly addressed Europe, especially Germany, with its long history of fiscal austerity. The EU’s 750 billion euro ($ 885 billion) joint reconstruction fund will only start in the second half of the year.
The United States will do two things to justify its case, Leats said strengthening the domestic economy and an internationally respected leader of its delegation to the Ministry of Finance Janet Yellen, who has been a stranger to IMF meetings since her time as Fed chairman.
But the world’s largest economy could find itself on the defensive spreading vaccines after accumulating huge stocks for themselves. “We will hear noise and crying 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 America’s thriving economy will undoubtedly act as engine for the rest of the world, as it sucks imports, there may also be a grunt about the higher market costs of loans that rapid growth brings, especially from economies that are not as sound.
“Biden’s stimulus is a double-edged sword,” said Mori Obstfeld, a former chief IMF economist who is now a senior fellow at the Peterson Institute for International Economics in Washington. Rising long-term interest rates in the United States “tighten global financial conditions. This has implications for debt sustainability for countries that have stepped up the fight against the pandemic. “
The Chief Economist of JPMorgan Chase & Co. Bruce Cassman said he had not seen such a big difference between 20 and 25 years in the expected results of the United States and other developed countries 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 made by different countries.
After cutting mostly interest rates last year and launching asset purchase programs, central banks are parting ways with some emerging markets that are beginning to raising interest rates either to accelerate inflation or to prevent capital flight. Turkey, Russia and Brazil raised borrowing costs last month, while the Fed and the European Central Bank said they would not do so for a long time.
Rob Subbaraman, Head of Global Market Research at Nomura Holdings Inc.
“As major developed market central banks experiment with how hotly they can run economies before inflation becomes a problem, emerging market central banks will need to be especially careful not to lag behind, and will probably need to lead instead of follow, their developed counterparts in the market at the next interest rate tourism cycle, ”Subbaraman said.
In a customer video from April 1, Kasman summarized the global economic outlook as follows: “Boom-type conditions with quite wide differences.”
“With the help of Eric Martin.”