Global economy set for record recession recovery
- The global economy is set to recover at the fastest rate in over 80 years
- Many developing countries are still struggling with COVID-19 aftermath
- China’s GDP on course for 8.5% growth in 2021
- UK concerns rise over Delta variant
The global economy is on course to recover at the fastest rate in over 80 years after suffering from the severe financial impacts of the coronavirus pandemic. Based in Washington, DC, the World Bank forecast in their half-yearly Global Economic Prospects (GEP) report that the global economy would expand 5.6% in 2021, which is a significant improvement from January’s predictions of 4.1%.
Whilst these growth levels are promising, the World Bank also highlighted that the figure remains 2% below what would have been achieved without the coronavirus pandemic.
The World Bank confirmed that the expansion would be the fastest post-recession recovery since World War II. The report outlined that 90% of wealthy countries would recoup pre-pandemic GDP levels by 2022.
While these findings are excellent news for many economies, the data has also highlighted a significant divide between wealthy and poorer nations.
Low-income countries continue to struggle with COVID-19 aftermath
While advanced economies are recovering rapidly, low-income developing nations continue to struggle with the economic impact of COVID-19. President of the World Bank, David Malpass, highlighted that whilst there are positive indications of worldwide recovery, coronavirus continues to inflict poverty and inequality on those living in developing countries across the globe.
To bridge the gap between rich and poorer nations, Mr Malpass stated that Globally coordinated efforts would be needed to increase coronavirus vaccines to developing countries. As the global economic outlook continues to improve, Mr Malpass also highlighted that policymakers worldwide must assess the ongoing effects of the coronavirus pandemic. Addressing these long-term issues will help generate inclusive growth and resiliency across low-income countries whilst protecting macroeconomic stability.
The issue of supporting low-income countries will also be discussed during this week’s G7 summit, taking place in Cornwall on Friday. The focus of the support will be on funding to deliver further vaccines to poorer nations across the globe. Over 100 former political leaders, including former UK Prime Ministers Gordon Brown and Tony Blair, have demanded that wealthy individuals across western nations cover two-thirds of the GBP 46.6 billion needed to provide coronavirus vaccines to low-income countries.
The GEP report outlined how the coronavirus pandemic had further aggravated developing countries, reversing potential poverty reduction gains, intensifying insecurity and long-term financial challenges. By the end of 2021, it’s thought that around 100 million individuals across low-income economies will have regressed to extreme poverty.
In 2021, economic growth in developing countries is predicted to be the slowest in the past 20 years, primarily due to the slow vaccination rollout. Low-income economies are forecast to grow by 2.9% in 2021 and rise to 4.7% in 2022. Output in 2022 across developing countries is projected to be 4.9% under pre-pandemic projections.
It’s suggested in the World Bank’s GEP report that recovery across developing countries could be bolstered by reducing trade costs and simplifying border procedures. While trade with developing countries has experienced a decline in the last 15 years, overall trade costs can be up to 50% higher than more prosperous economies due to excessive shipping and logistics charges. It’s been noted that an improved governance structure and streamlined trade processes are needed to help aid economic recovery within such countries.
Whilst inflation looks to be on target for most countries in 2021; rising inflation could pose further economic stress to those across developing nations, leading to unaffordable essentials.
World Bank Prospects Group Director Ayhan Kose stated that increased inflation levels could complicate the policy choices across developing countries, with many still relying on expansionary support measures to aid sustainable recovery. Mr Kose also noted that such economies would continue to be susceptible to financial market stress unless the risks from high debt levels are addressed.
China’s GDP on track for 8.5% growth
Further highlighting the divide between rich and developing nations, the World Bank has forecast that Gross Domestic Product (GDP) in China will expand by 8.5% this year. The prediction is unsurprising, given the intense consumer demand experienced so far this year within China.
China’s 618 mid-year shopping festival, launched by e-commerce giants Alibaba and JD.com, has seen record sales this year. JD.com saw sales quadruple year-on-year, while cosmetic sales surged 64 times year-on-year. Despite China’s impressive rebound, global output levels will continue to remain below pre-pandemic levels.
Emerging markets and developing economies collectively are predicted to expand 6% in 2021 due to higher demand and raised commodity prices. With the exception of China, economic recovery across emerging markets is expected to be an average of 4.4%, with the rebound across emerging markets and developing economies predicted to reach 4.7% in 2022. The gains seen amongst these economies, such as India, South Africa, Bangladesh, and Mexico, are inadequate to recover the significant losses seen during the coronavirus pandemic in 2020. Output amongst these countries is also expected to be 4.1% below pre-pandemic projections in 2022.
Meanwhile, the World Bank predicts that the United States will see 6.8% GDP growth this year, primarily encouraged by the easing of coronavirus restrictions. Significant support from the US Government, such as President Joe Biden’s USD 1.9 trillion coronavirus stimulus package and rapid vaccination rollouts have also improved the economic outlook.
Across Europe and Central Asia, the regional economy is predicted to expand by 3.9% in 2021 and 3.9% in 2022. While UK GDP growth for 2021 was upgraded from 5.1% to 7.2%, concerns continue to grow regarding the Delta variant.
Could Delta variant threaten UK economic recovery?
The UK was on track to see a complete lifting of coronavirus restrictions on 21st June, leading to hopes of further UK economic expansion. However, the Delta variant and concerns of a third wave of coronavirus infections cast a shadow over UK economic progress.
The Delta variant, previously known as the Indian variant, is a strain of COVID-19 originating from India and is said to be 40% more infectious than the original strain. The news comes as Eluned Morgan, Health Minister for the Welsh Government, declared that a third wave of coronavirus infections across the UK was inevitable. There are said to be over 12,000 cases of the Delta variant currently in the UK, with fears that further infections could lead to increased hospitalisation, placing pressure on the NHS once again.
Peter Openshaw, professor of experimental medicine at Imperial College London, labelled the Delta variant as a ‘considerable competitive advantage’, with the ability to rapidly spread amongst unvaccinated individuals if all restrictions are lifted on 21st June. The threat of the Delta variant is raising concerns over delays to the full reopening of the UK economy and the impact this could have on UK’s financial recovery.
Looking at the UK’s economic progress during the coronavirus pandemic, the Bank of England (BoE) forecast that the UK economy would contract by 4.2% during the first quarter of 2021. However, recent data suggests that the contraction was less severe at 1.5%. This data indicates that the UK economy is more resilient than initially anticipated.
Economist for the Independent, Julian Jessop, does not believe that a potential two-week delay on the full reopening of the UK economy would have a significant long-term financial impact. Mr Jessop notes that even with current restrictions in place, the UK economy is continuing to see a strong rebound.
Similarly, Samuel Tombs at Pantheon Macroeconomics states that a slight delay beyond 21st June would not warrant a revision in the UK’s GDP forecast for 2021.
A resurgence of coronavirus infections is likely to be more detrimental to the UK economy than a delay reopening of remaining businesses, with further cases expected to dampen consumer confidence and a reluctance to visit public places.
The UK hospitality industry has been one of the most impacted sectors in the UK during the coronavirus pandemic, relying on a prosperous summer to help recover losses from the past year. Individuals within the hospitality industry have voiced their fears that even a two-week delay on the UK’s full economic reopening could be the end for many businesses.
Should there be a substantial third wave of coronavirus infections in the UK this year, it’s thought that businesses will require further government financial support as well as a possible extension to the UK furlough scheme, currently due to end in September. Whilst there has been no confirmation that the UK Government will delay the 21st June reopening, it has been reported that they are ‘keeping an open mind.’
With the UK’s track record of economic resilience over the past year, a third wave of coronavirus infections will undoubtedly pose a financial challenge but seems unlikely to throw economic forecasts significantly off course.