World economic update - Rich world, Poor world

The world is witnessing a very uneven rebound from the pandemic, with the rich world seemingly moving faster.

 World economic update - Rich world, Poor world

---

• The story: Signals are pretty clear that while the rich countries have roared back from the depths of 2020's contraction, the poor countries are lagging behind. The world economy marked an extraordinary comeback from the deepest global downturn in decades. But new variants of Covid-19 are casting a cloud over the global expansion.
• The fundamental gap: In Europe and North America, businesses and households were now looking beyond the immediate pandemic, due to widespread vaccinations. But governments in some Asian countries are introducing restrictions to combat the fast-spreading Delta variant. Africa’s low vaccination rate means its economic recovery is expected to lag other regions.

1. IMF said that close to 40% of the population in advanced economies has been fully vaccinated against Covid-19, compared with 11% in emerging market economies.
2. Along with large-scale government spending, this has spurred a burst of pent-up spending by consumers in rich countries. The net results is that global supply chains are stretched heavily, labour markets are strained, and inflation is at a multiyear highs.
3. Eventually, central banks will start ending their easy-money policies.

• Back to 2019: The eurozone economy grew at an annualized rate of 8.3% in the three months through June, outpacing the larger U.S. economy and ending a brief recession in the winter months. In the U.S., economic output grew at an annual rate of 6.5% in the second quarter and rose above its pre-pandemic level, powered by an extraordinary increase in consumer spending and business investment. The return of the U.S. economy to its pre-pandemic size and the second-quarter growth of the eurozone means the world economy has returned to its 2019 size. [Annualized data measures the amount that an economy would grow if it continued expanding at the same pace over the course of a year]
• Too strong a recovery: This is like no other recession and no other recovery. The strength of the recovery has been surprising because old tools and frameworks for thinking about recessions did not apply.

1. French luxury group LVMH Moët Hennessy Louis Vuitton reported revenue of €28.7 billion for the first half of 2021, 14% higher than the same period in 2019. In Italy, revenue at Giorgio Armani SpA increased by about a third in the first half of 2021 from a year earlier, driven by strong sales in China and the U.S.
2. While widespread vaccinations in Western countries have sparked an economic boom, in Asia the resurgence of Covid-19 has hammered consumer sentiment in many countries and unsettled the region’s manufacturing supply chains. That was a bright spot of global activity during the pandemic as stay-at-home workers ordered more consumer goods.

• China's factory activity: It expanded at a slower pace in June, in part due to disruptions at one of the nation’s largest ports caused by the Covid outbreak. Consumer spending can take a further hit as new clusters of the Delta variant were detected at more than a dozen cities in China, leading to lockdowns.
• German situation: In Germany, Europe’s biggest economy and manufacturing powerhouse, business sentiment dimmed in recent time as companies worried about supply-chain bottlenecks and rising Covid-19 infection numbers.
• Other places: Greek and Spanish authorities recently imposed new social restrictions in the holiday island of Mykonos and the region of Catalonia to combat rising infections. In Asia, slow vaccine rollouts are disrupting some economies. In Indonesia and Vietnam, some industrial zones were recently ordered to operate at limited capacity to prevent the spread of cases, potentially disrupting supply chains of consumer goods. Thailand’s finance ministry cut the country’s 2021 growth forecast to 1.3%, from 2.3% as the country, which relies heavily on foreign tourists, has struggled to contain the largest Covid-19 outbreak to date. Japanese car maker Toyota said it would continue to halt production at factories in Thailand as the resurgence of Covid in Southeast Asia led to a shortage of components.
• IMF report: The IMF has lowered its growth forecast for five Southeast Asian countries—Indonesia, Malaysia, Philippines, Thailand and Vietnam. In addition, it predicted India's growth for 2021-22 to be as low as only 9.5%.
• Summary: The world is witnessing a very uneven rebound from the pandemic. Going foward, its implications are unknown, as many supply chains are tightly integrated and need to work seamlessly all over.

Join PT courses | PT Youtube | PT App | Contribute |  Testimonials