Global economic recovery delayed by slow vaccine deployment

The global economy is facing a early 2021 more difficult than expected, as coronavirus infections increase and the rollout of vaccinations is taking time.

While global growth is still on track to rebound from last year’s recession, it may take longer to ignite and not be as healthy as expected. The World Bank has already reduced its forecast at 4% in 2021 and the International Monetary Fund will update its own outlook this week.

2021 GDP forecast

World Bank predicts global economy to grow 4% this year

Source: World Bank

Double-dip recessions are now expected in Japan, the euro zone and the United Kingdom as restrictions to curb the spread of the virus are applied. Record cases in the United States are dragging out retail spending and hiring, prompting President Joe Biden’s new administration to seek an additional $ 1.9 trillion in fiscal stimulus.

Only China has managed a V-shaped recovery after bringing the disease under control early, but even there consumers remain wary with Beijing partially on lockdown.

High frequency indicators Bloomberg Economics tracks indicate a troubling start to the year, with advanced economies starting on a low note and emerging economies diverging.

“This reflects the harsh reality that before the vaccine was widely distributed, a return to normality was an unlikely prospect,” said Tom Orlik, chief economist at Bloomberg Economics.

Growth stumble

Economic activity has a very slow start to the year

Source: Bloomberg Economics, Google, Moovitapp.com, German Statistical Office, BloombergNEF, Indeed.com, Shoppertrak.com, Opportunity Insights

It’s a difficult prospect facing policymakers after $ 12 trillion in budget support and trillions of dollars in central bank printing fail to cement a recovery. Those of the Federal Reserve are meeting this week.

Market optimism

Even though the economic outlook has darkened as the weeks of 2021 have passed, financial markets have continued to rally to optimism about the government’s stimulus measures and the vaccine rollout will lead to a recovery. Global equities hit a all-time record last week.

Inequality is likely to appear in remarks from world leaders including Chinese President Xi Jinping, his French counterpart Emmanuel Macron and German Chancellor Angela Merkel and others who will speak at an online event hosted by the World Economic Forum from January 25 to January 29 in place of its usual meeting at the Swiss Ski Resort Davos.

The United States, Britain and the European Union are delivering vaccines, setting up a scenario in which parts of the world are reaching collective immunity while others are lagging behind, hurting the poorest economies.

“Although there is light at the end of the tunnel, there is still a long and difficult way to go before we exit,” said Erik Nielsen, group chief economist at Unicredit SpA. “As long as the pandemic terrorizes part of the world, nowhere will normalcy be restored.”

Optimistic outlook rests on authorities vaccine on a material scale by the middle of the year and neutralizing the threat of more transmissible variants of the virus. The continuous supply of easy monetary policy and hope that governments will not withdraw their support prematurely as some did after the financial crisis should also help.

Full steam ahead

China’s share of global economy set to grow at a faster pace

Source: IMF, World Bank, McKinsey & Company

Lockdowns and other restrictions on movement also appear to have less of a damaging economic impact this time around than last year, as consumers and businesses have found ways to adapt. And China’s advance in the global recovery shows what is possible once the virus is controlled.

“The first quarter will be worse than we expected,” said Shaun Roache, chief economist for the Asia-Pacific region at S&P Global Ratings in Singapore. “But we are seeing a delayed, not derailed recovery.”