Countries ready to pay the economic price for not having controlled Covid

The likelihood of a coordinated global economic rebound from the coronavirus pandemic has diminished, as slowing vaccine deployments and a new wave of infections in some countries lead to “widely divergent growth prospects,” according to exclusive research from the Financial Times.

The main driver of economic success in 2021 will likely be the ability to control the virus, according to the Brookings-FT Tracking Index, which predicts that advanced economies will overtake emerging markets in terms of growth, financial indicators and investor confidence in the coming months.

The index comes as finance ministers and central bankers prepare for the latest virtual IMF and World Bank meetings this week. The divergent economic outlook will add tensions to the already loaded global battles over vaccine production and distribution.

“The world economy faces very divergent growth prospects depending on the region, as the prospects for a rapid and uniform recovery of a dark 2020 have become obscured, ”said Professor Eswar Prasad of the Brookings Institution.

The Brookings-FT Tracking Index for Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages for the global economy and for individual countries, entering in how normal the data for the current period is.

In the latest half-yearly figures, data for emerging economies remains much worse than usual since the index’s inception in 2012, while the performance of advanced economies has improved in parallel. recovery in the financial markets.

Last week, IMF and the A warned that poorer countries affected by the economic and health effects of the pandemic risk facing a debt crisis unless more ambitious measures are taken by multilateral institutions and the world’s richest economies.

Prasad said economic success depended on countries putting in place their health and economic policies.

“The recipe for a strong and sustainable recovery remains the same as last year – resolute measures to control the virus coupled with balanced monetary and fiscal stimulus, with an emphasis on policies that support the demand and improve productivity, ”he added.

The United States and China, the world’s two largest economies, are leading the global recovery, the index says, but with different policy combinations. US growth is on the verge of a record year with production forecasts at the highest level before the pandemic thanks to a fiscal stimulus from Joe Biden, which has put substantial financial firepower in the hands of most of American households.

The Chinese economy has remained resilient with few outbreaks of the coronavirus and the government is looking to longer-term ambitions to boost consumption and the service sector.

But in Europe and much of Latin America, growth prospects are weak and the IMF forecast due for release this week should show their output is unlikely to reach pre-pandemic levels. until 2022.

Industrial production and trade have held up well across the world since the early months of the pandemic last year, although problems persist in consumer service industries that are still largely affected by restrictions to control the pandemic. spread of the pandemic.

Line graph of the relative strength index of a range of indicators, by type of economy, showing that real activity fell again as virus cases rose again

“Indecisive policies affect consumer and business confidence in weaker economies, adding to economic tensions,” Prasad said.

With the yields on the dollar and US bonds rising, economists fear that emerging economies with high foreign currency exposure will find it difficult to repay their debt.

IMF members to discuss efforts of G20 group of major economies this week to alleviate these debts, as well as efforts to develop a more sustainable Covid-19 vaccine supply and the best way for the global economy to recover from the crisis.

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