As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the momentum of a global recovery, a closely watched report warned on Tuesday.
The International Monetary Fund said in its latest World Economic Outlook report that overall growth this year will be closer to 6%, a historically high level since the recession, but the expansion reflects a huge gap in the fortunes of rich and poor countries. .
Poverty, hunger and unbearable debt are all on the rise around the world. The decline in employment, especially for women, in recent years has reversed many of the gains made to them.
Unequal access to vaccines and health care is at the heart of economic disparities. While booster shots are becoming available in some wealthy countries, 96 percent of people in low-income countries are still not vaccinated.
“Recent developments have made it abundantly clear that we are all in this together and the pandemic is nowhere to be found,” IMF chief economist Gita Gopinath wrote in the report.
The outlook for the United States, Europe and other advanced economies has also turned bleak. Epidemic restrictions and bottlenecks at major ports around the world have caused factories to run out of supplies. In many industries, there is a situation of jam due to shortage of workers. The US Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August – to seek or seek a new job, or to leave the workforce.
In the United States, the IMF lowered its growth projections to 6% from 7% projected in July due to weak consumption and a large drop in inventory. In Germany, manufacturing output has been affected as key items are difficult to find. And summer lockdown measures have slowed growth in Japan.
The fear of rising inflation – even if likely to be temporary – is on the rise. Prices for food, medicine and oil, as well as cars and trucks, are climbing. Inflation concerns could also limit governments’ ability to stimulate the economy if the recession worsens. Anyway, the unusual communication of public support in the United States and Europe seems to be coming to an end.
“Overall, risks to economic prospects have increased, and policy tradeoffs become more complex,” Gopinath said.
The IMF cut its 2021 global growth forecast to 5.9% from 6% projected in July. For 2022, the estimate is 4.9%.
The key to understanding the global economy is that the recovery is out of sync in different countries, said Gregory Dako, chief US economist at Oxford Economics. “Each economy is suffering or benefiting from its own unknown factors,” he said.
For countries like China, Vietnam and South Korea, which have large manufacturing sectors in their economies, “inflation tends to hit where it hurts the most,” Dako said, adding to the increase in raw material costs that travel through the production process. Resonates.
The pandemic has underscored how economic success or failure in one country can ripple across the world. Floods in China’s mining regions Shanxi and monsoons in India’s coal-producing states contribute to rising energy prices. A COVID outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken, New Jersey, won’t have shoes and sweaters to sell.
The IMF has warned that if the coronavirus – or variants of it – continues to spread around the world, it could reduce the world’s projected output by $5.3 trillion over the next five years.
The worldwide boom in energy prices threatens to cause further hardship as it hinders recovery. This week, oil prices in the United States hit a seven-year high. With winter approaching, Europeans are concerned that heating costs will rise as temperatures drop. In other places, shortages have deepened, causing blackouts in some places, halting transportation, shutting down factories and threatening food supplies.
In China, electricity is being rationed in many provinces and many companies are operating at less than half their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have fallen to dangerously low levels.
And over the weekend, Lebanon’s 6 million residents were left without any power for more than 24 hours after a fuel shortage after the country’s power plants were shut down. The outage is the latest in a series of disasters out there. Its economic and financial crisis has been one of the world’s worst in 150 years.
Oil producers in the Middle East and elsewhere are benefiting from the recent price jump. But many countries in the region and North Africa are still trying to revive their pandemic-battered economies. According to newly updated World Bank reports, 13 of the 16 countries in that region will have lower living standards this year than before the pandemic, largely due to “underfunded, unbalanced and poor health systems”.
Even before the pandemic, other countries were so burdened with debt that governments were forced to limit spending on health care to pay off foreign lenders.
In Latin America and the Caribbean, the second decade of growth is expected to be lost, as was the case after 2010. In South Africa, more than a third of the population is out of work.
And in East Asia and the Pacific, a World Bank update warned that “COVID-19 threatens to create a combination of slow growth and rising inequality for the first time in this century.” Businesses in Indonesia, Mongolia and the Philippines lost an average of 40% or more of their normal monthly sales. Thailand and several Pacific island economies are expected to produce less in 2023 than before the pandemic.
Some developing economies are performing better than last year, partly due to rising prices of commodities like oil and the metals they produce. Growth forecast slightly increased to 6.4% in 2021 compared to 6.3% projected in July.
“Recoveries have been incredibly uneven,” said Carl Tannenbaum, chief economist at Northern Trust, “and that’s a problem for everyone.” “Developing countries are essential to global economic work.”
There is a cloud of uncertainty. The IMF has warned that uncertain policy decisions – such as Congress’ delays in lifting debt limits – could further backfire.
But the biggest risk is the emergence of a more contagious and deadly coronavirus variant.
At the IMF, Gopinath urged vaccine manufacturers to support the expansion of vaccine production in developing countries.
Earlier this year, the IMF approved a $650 billion emergency currency reserve that has been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit the poorer countries most struggling with the fallout of the virus.
World Bank President David Malpass said: “We are witnessing a tragic reversal of growth in many dimensions.” “Progress in alleviating extreme poverty has held back for years – for some, by a decade.”