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The renewed rise in Covid-19 infections threatens to further divide the global economy between the rich and the poor, potentially harming global growth if fresh outbreaks spread or if key sources of demand dwindle.
Several people were diagnosed Covid-19 last week than any other since the pandemic began. The World Health Organization warned this week that new infections are on the rise everywhere, with the exception of Europe, which is driven by a significant number in India, with increasing cases in Argentina, Turkey and Brazil.
This casts a shadow over a previously strong global economic recovery, given that failure to control the virus or to distribute vaccines evenly risks leading to new mutations, first in emerging markets and then in developed nations that had beaten the pandemic.
Even if this does not happen, a two-step recovery will restrict even inoculated countries, limiting external demand for their goods and destabilizing supply chains. The International Monetary Fund said last month that the recovery will lose a $ 9 trillion increase by 2025, unless faster progress is made in ending the health crisis.
Global recovery
The IMF predicts that growth in 2021 will be the highest since at least 1980
Source: International Monetary Fund
Emerging and developing economies it accounted for two-thirds of global growth before the pandemic and about 86% of the world’s population. The World Bank told them this week that it should Get ready for the possibility of their recoveries to lose steam. A nascent economic renaissance in India – the sixth largest economy in the world – is threatened by renewed traffic limits in the provinces to stop a new wave of infections that have had has exceeded 200,000 daily in the last week.
“The new increases in cases are a test of the reality for the world economy, because it is clear that the pandemic is not nearing an end,” said Tuuli McCully, Asia Pacific’s chief economist at Scotiabank. “Many lower-income economies continue to face severe Covid-19 challenges and have a long way to go before they return to ‘normalcy.'”
Health workers are preparing to administer Covid-19 vaccines to residents at a vaccination site in Richmond, California, on April 15.
Photographer: David Paul Morris / Bloomberg
More than 944 million vaccinations have been given in 170 countries, according to data collected by Bloomberg – enough doses for 6.2% of the global population. But the distribution is deficient, obtaining the countries with the highest incomes vaccinated about 25 times faster than those with the lowest.
“I see it as a race between virus mutations and vaccine launches,” said Rob Subbaraman, head of global market research at Nomura Holdings Inc. “Many people are not aware that while the Spanish flu of 1918 is thought to have started in the United States and then spread to Europe, eventually the countries that suffered the most were in emerging markets. It is an ominous sign of history repeating itself. ”
Markets are showing signs of nervousness. A stock gauge in Asia lagged behind its global counterparts this month, while the Indian rupee is the weakest currency in the region this week. Investors sought traditional paradises such as the Japanese yen and rewarded those with better outbreak management records, such as the Israeli shekel, the Taiwan dollar and the British pound.
The companies that rely most on reopening the global economy are particularly vulnerable, and the latest surge in infection covers a “reopening of prices to perfection,” wrote Stephen Innes, global market strategist at Axicorp Financial Services Pty Ltd. in Sydney. a note for customers.
High expectations
The IMF predicts that the world economy will expand by 6% this year
Source: International Monetary Fund
“The glaring problem is that despite the intense efforts of the medical community around the world, we are not even close to naming it a day so that people can start again or continue with things more productively,” according to Innes.
The spread of cases threatens what is projected to be a V-shaped recovery for global growth, led by the US and China. The IMF currently expects the world economy to grow by 6% this year, the highest in four decades. But he knows that the longer the pandemic lasts, the harder it will be to meet that forecast.
“The window of opportunity closes quickly,” said CEO Kristalina Georgieva. “The longer it takes to accelerate vaccine production and launch, the harder it will be to make those gains.”
The IMF has modeled a disadvantage scenario in which supply bottlenecks in vaccine supply and other logistical problems allow existing virus variants to take root and new mutations to occur, leading to delays in achieving six-month effective immunity in advanced economies. and nine months in emerging markets.
In such a scenario – with persistently high infection rates and deaths that slow the normalization of mobility – overall growth could be 1.5 percentage points lower than in the baseline scenario in 2021 and another 1 percentage point below baseline in 2022.
The pace of vaccinations in the coming months and their ability to withstand new variants will dictate the recovery here, according to Ben Emons, CEO of Global Macro Strategy at Medley Global councilors in New York.
“It will take most of the second quarter to gain visibility if the global launch really succeeds against the variants,” Emons said.
(Updates with details on the growth of India virus in the fifth paragraph)