Way out of global COVID-19 recession to be uneven

Although the COVID-19 pandemic is still clenching the world tightly in its fist, and a new wave of restrictive measures in Europe threatens to become another ‘circle of hell’ for the economy of the ‘Old World,’ international financial institutions (IFIs) prefer to talk about the prospects for this year in a positive way. In their opinion, the ‘Biden’ package of measures to support the US economy will help to gradually restore demand in the commodity markets, which will stir up other segments of the global market.

Positive forecasts

Global economy has lost over $3.5 trillion due to the coronavirus pandemic, which is twice as much as during the 2008 crisis, said Russian Deputy Foreign Minister Sergei Vershinin. He noted that experts assess the situation as the largest global crisis since the Second World War.

Meanwhile, financial officials from around the world are preparing to meet - online, of course - at the spring meetings of the International Monetary Fund (IMF) and the World Bank. On April 7, the heads of financial departments of the G20 countries will also meet. Reuters says that the IMF will provide a brief report on the scars of the coronavirus pandemic to the global economy and will revise growth forecasts for 2021 and 2022. During these meetings, support for countries particularly affected by the pandemic in the amount equivalent to $650 billion will be discussed.

This week the IMF announced that it is going to improve forecasts for the global economy for 2021 and 2022, taking into account new fiscal stimulus measures in the US, as well as advancing vaccinations against COVID-19. “These factors allow us to revise upward forecasts for the world economy for this and next years,” said IMF Managing Director Kristalina Georgieva.

Analysts of almost all IFIs are confident that the ‘Biden’ package of almost $2 trillion support for the economy and the expected package of infrastructure spending will have a positive impact not only on the US economy, but also on the economies of other countries, putting pressure on aggregate demand upward. As a result, raw material markets, production chains, etc. will come to motion.

The Organization for Economic Co-operation and Development (OECD) expects the global economy to grow 5.6 percent in 2021, 1.4 percentage points higher than the previous forecast. In 2022, global GDP will increase by 4 percent.

According to experts, the outlook for the global economy has improved significantly thanks to effective campaigns to vaccinate the population against COVID-19 and the allocation of additional financial support measures in some countries. They expect that it will be possible to reach the pre-crisis level by mid-2021.

The World Bank has published the next edition of the Europe and Central Asia (ECA) Economic Update, in which it also emphasized that this year the developing economies of the region are expected to grow 3.6 percent. The bank’s analysts believe that the recovery in exports and the stabilization of prices for industrial goods will partially offset the consequences of the next wave of the pandemic that began in late 2020. Growth is expected to accelerate to 3.8 percent in 2022, amid the gradual easing of the pandemic and the improvement in trade and investment in the region.

Unfair distribution

However, this doesn’t mean at all that all countries will be able to overcome the consequences of a deep crisis in such a friendly way and together - on the contrary, the economic future of most of the world is painted in dark colors. This is not hidden by influential organizations, linking the reasons for the uneven recovery in the dishonest distribution of COVID vaccines across countries. Head of the World Health Organization (WHO) Tedros Adhanom Ghebreyesus said that the unfair distribution of vaccines is not just a moral shame, it is suicidal from an economic and epidemiological point of view.

As long as the virus continues to circulate elsewhere, and people continue to die, trade and travel will remain disorganized, and the economic recovery will be postponed, the head of WHO explained.

Meanwhile, the IMF suggests that total per capita income in emerging market and developing countries, excluding China, between 2020 and 2022 will be 22 percent lower than it was before the pandemic. This, in turn, will lead to the fact that since the beginning of the pandemic, about 90 million people will find themselves below the poverty line.

“Forecasts for the global economy depend on the pandemic, and it is being influenced by uneven progress in vaccination and new strains of the virus that hinder the prospects for economic growth, especially in Europe and Latin America,” Kristalina Georgieva said in solidarity with the head of WHO.

Saxo Bank analysts believe that efforts by the authorities to simultaneously address three major issues - inequality, green transformation and a number of infrastructure issues - will cost the global economy dearly. This will lead to inflation, a higher marginal cost of capital and a difficult understanding that the main problems need to be solved not simultaneously, but each at a time.

Saxo Bank emphasizes that the money that was pumped into the global economy after the pandemic accounts for more than 20 percent of global GDP before the 2019 coronavirus, at that time $88 trillion. The fact that more than 80 percent of this amount probably came from developed markets also distorts the distribution of this incentive.

The WB also believes that the countries with economies are heavily dependent on services and tourism suffered the most. Consequently, they don’t expect a quick recovery, either, since the third wave of COVID-19 and another round of tightening restrictions are already taking place in Europe. Analysts at Morgan Stanley have warned that if the restrictions remain in place for a few more months, it will lead to another lost summer and reduce GDP of Spain and Italy by 2-3 percent.

In a word, a strange picture emerges from all these forecasts and reports - IFIs seem to have positive expectations, but not for all countries. All predictions are uncertain because of the situation with the pandemic and vaccinations. That is, to all appearances, international analysts prefer to publish an optimistic development scenario based on forecasts of large economies.

However, one shouldn’t forget that the current crisis is so deep and large-scale, and the trend of globalization has tied the economies of all countries so tightly that it is possible to achieve stability only together, supporting development in all regions of the world.

Expert Gulu Nuriyev