The Global Outlook
The deadly covid-19 unexpectedly dealt quite a very harsh and deep blow on the global economy. It caused a painful global recession whose dept and consequences were surpassed only by the two World Wars and the Great Depression over the past century. Although global economic events are up shooting once again, it is unlikely to be restored to its pre-pandemic condition in the foreseeable future. The pandemic resulted in severe loss of life, tipped and still pushing millions into extreme poverty, and is forecasted to inflict continuous damages on people’s income and businesses for a prolonged period.
Though there has been an incipient recovery and positive outcomes, many countries have redoubled their efforts and enacted stringent regulations. Economic output is expected to expand 4% in 2021 but remains more than 5% below the pre-pandemic projections. Also, total global growth is estimated to moderate to 3.8% in 2022 due to a weigh-down by the pandemic’s continued incursions. Particularly, the impacts of the pandemic on investment and human capital are expected to discourage growth prospects in Emerging Markets and Developing Economies (EMDEs). Further developmental landslides will be caused by delays in vaccination, civil strife, political instability, and terrorism. But to resuscitate the weakling economies of the world, drastic measures such as limiting the spread of the virus, immediate vaccination, creating more viable trade regulations, and provision of reliefs to vulnerable populations are the assumed remedy to further downside. Aside from China, most other EMDEs will find it tasking to recover from the waves of the pandemic.
In advanced economies like Germany, the USA, Switzerland, UK, etc., the initial contraction was less severe than anticipated but the ensuing recovery has been damped by a huge resurgence of COVID-19 cases. Output in China alone is estimated to have rebounded in the last quarter of 2020 at a cheetah speed, with support from infrastructure spending. China’s recovery was quite an exception.
Whatever the economic arguments may be, comprehensive prospects for the global economy are very undeterminable. And several growth dynamics are possible. In the baseline forecast, global GDP is certainly going to expand 4% in 2021 if there will be proper COVID-19 management, continued monetary policy accommodation, and diminishing fiscal support. Nevertheless, the level of global GDP in 2021 is forecast to be $4.6 trillion 5.3% below what it was before the pandemic. If there is a continuous recovery, global growth is envisioned to moderate in 2022 to 3.8%, and 4.4% below pre-pandemic projections.
Globally, the pandemic has caused per capita incomes to fall in more than 90 percent of emerging markets and developing economies, forcing the populace into harsh poverty. Sadly, for more than a quarter of the EMDEs, the pandemic is anticipated to erase at least 11 years of per capita income gains. After over two decades of giant strides to strengthen the economy, the crisis is projected to push poverty rates back to levels last seen in 2017. It has adversely impeded prospects for poverty reduction by badly affecting longer-term productivity growth.
In low-income countries ( LICs) like Nigeria, Mexico, Romania, etc., activity in 2020 shrank about 0.9 percent – the first aggregate contraction in a generation. The pandemic has hit the most fragile and troubled low-income nations, and their recovery will be the most sluggish. This is specifically due to a slow and epileptic rollout of vaccines, banditry, distrust of the efficacy of the vaccines, political tussles, and corruption. Even if the spread of the virus is contained, the containment may be short-lived, and the world economic impairment may be long-lasting than projected. Debts have surged above the normal, and a wave of bankruptcies is about to sweep across the financial institutions thereby putting countries in crisis.
Coronavirus continued its spread in the second half of 2020, with a steady increase in confirmed cases in some countries. In recent months, first-world nations like the United States, and several euro countries have accounted for an increasing share of cases. In South Asia, Latin America, Europe, and Central Asia, there has remained an astronomical rise in cases. While in Sub-Sahara Africa, the percentage of death has remained low but there is fear that limited healthcare may leave the region vulnerable to the virus.
Growing outbreaks forced the government to reintroduce some lockdown measures. Nonetheless, pandemic-control strategies have become better productive and less disruptive. For instance, extensive use of masks appears to be a minimal way of curtailing the spread of the virus.
Global trade collapsed in 2020 as border closures and disruptions in supply interrupted international trading. Trade of goods fell more rapidly and recovered more swiftly and less swiftly for services trade than during the global financial crisis. Continued impediments to international travel and tourism are contributing to persistent weakness in services. Although some regions have taken bold steps toward market liberalization such as the African Continental Free Trade Area agreement and the Regional Comprehensive Economic Partnership, higher tariffs on USA-China trade due to a “Technomic” war remain in effect. The recent exit of Britain from the European Union is also likely to contribute to global trade uncertainty.
The Financial Markets
It was aggressive financial policies that kept our banks functioning throughout 2020, from falling into the depths of liquidation. Currently, financial conditions are loose, as suggested by low borrowing costs, abundant credit issuance, and a recovery in equity market valuations amid positive news about vaccine developments. Debt burdens have increased as corporations have faced a period of sharply reduced sales and sovereigns have financially large stimulus packages. High debts leave borrowers vulnerable to a drastic change in investor risk appetite. Capital inflows to many Emerging Markets and Developing Economies remain soft-pedaled, with a significant decline in foreign direct investment (FDI). This, alongside a collapse of export revenues, has led to substantial currency depreciation and rising borrowing costs in some countries.
An Undisputed Reality; The Winners and The Losers
By a whopping margin, China is fast taking over the baton as the world economic power against their losing predecessors. From the existing facts and figures, there is a strong tendency that the Chinese economy will continue to expand as they recovered from the economic impacts of the pandemic quicker and more tacitly than America, UK, Russia, and Germany. With a very viable capitalist-communist political practice, the Peoples Republic of China now exports technologies and technical know-how to 6 out of every 10 countries worldwide more than ever. The government’s financial support to Small and Medium Enterprises (SMEs) is the bulwark of the country’s geometrical growth in the economy and is expected to rise over decades to come unless another pandemic surfaces. Third-world countries have a long way to go in their stride to recover from the impacts of the pandemic. And the first step towards their recovery is to learn from China.
The Way Forward
Limiting the spread of the virus, providing relief for vulnerable populations, and overcoming vaccine-related challenges are key immediate policy priorities. As the crisis abates, policymakers need to balance the risks from large and growing debt loads with those from slowing the economy through premature fiscal tightening. To confront the adverse legacies of the pandemic, it will be critical to foster resilience by safeguarding health and education, prioritizing investments in digital technologies and green infrastructure, improving governance, and enhancing debt transparency. Only mutual global cooperation will be key in addressing many of these challenges.