The Global Economic Recovery
A year ago, the COVID-19 outbreak drastically changed people’s lives. The impact of the pandemic has been significant on many aspects, especially in the social and economic.
Consequently, alongside the loss of human lives, the pandemic has also weakened many economic sectors and led to one of the most important recession in 2020.
Since the beginning of 2021, the distribution of vaccines allows hope for a better economic prospect. However, the vaccine campaign encounters slowness and is not evenly distributed across countries.
This article will highlight the major economic challenges that have been present since the beginning of the outbreak, as well as different views, data and opinions on how to properly initiate a global economic recovery.
How the COVID-19 crisis has impacted the economy
The World Health Organization (WHO) announced the outbreak of the new virus COVID-19 in March 11 2020 as a global pandemic. This crisis has been qualified as “unprecedent”, and with government’s measures put in place to contain the virus expansion, such as lockdowns and social distancing, many sectors have been largely impacted. The adoption of lockdowns was indeed an important factor in the recession, while social distancing contributed to the economic contraction (10).
The World Bank stated that: despite the extraordinary efforts of governments to counter the downturn with fiscal and monetary policy support, the year of 2020 has seen the deepest global recession in decades (5). No country has been spared from recession during the pandemic. The deep recessions are going to have a large impact and to leave scars through: “lower investment, an erosion of human capital through lost work and schooling, as well as a fragmentation of global trade and supply linkages” (5)
However, the crisis did not impact countries equally and emerging markets were at a higher risk to plunge into extreme poverty. During the IEFA Conversations Series, Carmen Reinhart, Vice President and Chief Economist of the World Bank Group, interviewed by Karin Strohecker said that: “The crisis has been particularly hard on Emerging markets as they don’t have the capacity to adverse, to do counter policy done in wealthier economies, as well as vaccines” (3).
In other words, pressure on weak health care systems, loss of trade and tourism, dwindling remittances, subdued capital flows, and tight financial conditions has contributed to weakened emerging markets (5). Moreover, as they were already fragilized by the last decade, investment collapsed in many emerging markets and developing countries (6). Some economies that were dependent on sectors such as international travel and tourism have generally experienced a larger GDP decline in 2020 (2).
A possible economic recovery?
Many participants of the IEFA Conversations qualify this crisis as “unprecedent”.
Overall, investment growth is expected to resume in 2021. According to the OECD: “Global GDP growth is now projected to be 5.6% this year (2021), and economic rebound has been faster than it was expected as first (2). Also, despite a difficult year in 2020, some sectors have managed to adapt to pandemic restrictions. At the 2020 Conference of Paris (4), George H. Walker, Chairman and Chief Executive Officer at Neuberger Berman, has seen a meaningful acceleration of sectors that were already taking their place such as online retail, remote office, telemedicine (etc.). Martin Coiteux, Head of Economic Analysis and Global Strategy at Caisse de dépôt et placement du Québec, added on that point that: “there are sectors and companies that were doing very well because they use technologies that made them more resilient”.
However, there is a lot of divergence across countries and sectors. “Strict containment measures will hold back growth in some countries and service sectors in the near term, while others will benefit from effective public health policies, faster vaccine deployment and strong policy support” (2). As it was previously mentioned, the economic recovery has been different according to countries. In the OECD report, (2), in China, India and Turkey, activity moved above pre-pandemic levels due to strong fiscal measures and a recovery in manufacturing and construction. In Asia-Pacific economies, (including Australia, Japan and Korea), output shortfalls have remained relatively mild. The economies of the USA and Canada have been resilient while we have seen a more modest recovery in European countries. On China, George Walker commented that their economy was booming again because of measures taken that were unlikely to work in other countries. Indeed, China’s response was “brutal” but fast and efficient” (11). The different measures taken by States are an additional burden to emerging countries. Indeed, unlike the US economy which allow to have a round of stimulus to perform and go back to normal, emerging markets do not have the necessary stimulus, and therefore are more at economic risk when a crisis of this nature occurs. Martin Coiteux explains asymmetry between countries: “China has put a strong emphasis on a strict lockdown, and the key difference has been the way on how Government managed the crisis. Europe has supported businesses. US has go to households.it explains why it has been resilient”.
Even though economies like the one in the USA may be particularly resilient, according to the World Bank: in 2021 “advanced economies are projected to shrink 7 percent. That weakness will spill over to the outlook for emerging market and developing economies, who are forecast to contract by 2.5 percent as they cope with their own domestic outbreaks of the virus. This would represent the weakest showing by this group of economies in at least sixty years” (5).
In general, what is mostly coming from diverse reports is the critical role of a fast and effective vaccination across the world to ensure a good economic recovery (1) The United States is now a good example of a strong stimulus for vaccine campaign. Indeed, the significant fiscal stimulus in the United States, along with faster vaccination could boost US GDP growth by over 3% this year (2).
In addition, despite all the measures taken, none of this approach could work in the long run if the pandemic is not entirely tackled. During the interview on the “Lost Year”, Martin Coiteux added that “The real good news will be when we will be able to control this pandemic” (…) “There is a debt to GDP ratio that we have to live with for many years” and that “if ever inflation shows up, it would be hard to predict what happened and we might end-up in a low inflation for some time”.
COVID-19 caused a devastating crisis that plunged the global economy into one of its deepest recession. In the short-run, policymakers face formidable challenges and need to set foundations for a robust recovery in the longer run. Global GDP growth is projected to be 5.5 % in 2021 and 4% in 2022, with global output rising above the pre-pandemic level by mid-2021. Despite the improved global outlook, output and incomes in many countries will remain below the level expected prior to the pandemic at the end of 2022. (2)
While there is a strong prospect of an economic recovery at the pre-pandemic levels by 2021, the outcome will depend on the race between vaccines and emerging variants of the virus (1). The fast and efficient distribution of vaccines will play a key role in economic recovery. Tackling the vaccine campaign globally is crucial to ensure the economic recovery and is also important on an ethical point of view as it has been mentioned by Soumya Swaminathan, Chief Scientist at the World Health Organization, during the IEFA conversation on Investing in the Next Decade of Global health (8). Slow progress in vaccine rollout and the emergence of new virus mutations resistant to existing vaccines would indeed result in a weaker recovery, larger job losses and more business failures. (2)
Finally, vaccines alone are not enough to handle the future challenges ahead and most of all, it would be important to invest in infrastructure, education and climate. As every crisis leaves some marks it is important to make the right choices when spending more in the crucial areas.
- economic prosperity outlook
- OECD report March 2021
- IEFA conversation Serie – Shaping the rebirth of the Global Economy
- IEFA Conference of Paris (The Lost Year: how to restart the economy)
- World Bank (The Global Economic Outlook During the COVID-19 Pandemic: A Changed World)
- The World Bank (Global economic prospects 2021)
- IEFA Conversation Serie (Investing in the Next Decade of Global Health)
- How COVID has changed the world
- International Monetary Fund report (World Economic Outlook, October 2020: A Long and Difficult Ascent)
- Reuters (Organised ‘overkill’: China shows off rapid lockdown system after latest outbreak)