Global Economy Reviews

30.06.2021 21:12 World Economy Review - June 2021

The OECD raised its 2021 global GDP growth forecast but warned that “too many headwinds persist” as not enough COVID vaccines are reaching emerging economies, making the world vulnerable to variants. The world economy will expand by 5.8 percent this year, up from a previous estimate of 5.6 percent, the Paris-based Organization for Economic Co-operation and Development said in a report.

This follows a massive global recession last year that was caused by lockdowns and travel curbs imposed by governments to slow the spread of COVID-19. “It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way,” OECD chief Laurence Boone said in the report.

The recovery is uneven so far, with the US and China returning to pre-pandemic levels and forecast to have much stronger growth than other major economies such as Japan and Germany. The 38-nation organization, whose members account for 60 percent of the global gross domestic product, applauded the rapid reaction of governments to prop up the economy.

“Never in a crisis has policy support - be it health, with the record speed of vaccine development, monetary, fiscal or financial - been so swift and effective,” Boone said. “Yet, too many headwinds persist,” she warned. Boone said it was “very disturbing” that not enough vaccines were reaching emerging and low-income economies. “This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies,” she said.

The warning comes as the emergence of more contagious coronavirus variants has raised concerns around the world, with India battling a strain that has caused a surge in cases and deaths. “As long as the vast majority of the global population is not vaccinated, all of us remain vulnerable to the emergence of new variants,” Boone said.

New lockdowns would hurt confidence while companies, which are saddled with more debt than before the pandemic, could go bankrupt, she said. Another risk to the global GDP is how financial markets could react to concerns about inflation, the OECD said. Analysts have voiced concerns that rising inflation will prompt central banks to withdraw their easy-money policies to prevent the economy from overheating.

The OECD said the price increases are only temporary and linked to the economic recovery. “What is of most concern, in our view, is the risk that financial markets fail to look through temporary price increases and relative price adjustments, pushing market interest rates and volatility higher,” Boone said. “Vigilance is needed.”

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13.09.2020 22:35 World Economy Review - August 2020

After a drawn-out fight against the COVID-19 pandemic over the past half year, countries going through lockdowns to varying degrees have recently published the growth rate of their gross domestic product (GDP) in the second quarter, and "slump" has become the buzzword.

Nonetheless, be it "quarter-on-quarter" growth or "year-over-year" economic performance, China has grossed impressive positive growth from April through to June. And this is inseparable from the bolstering of anti-epidemic efforts.

The world`s second-largest economy grew by 3.2 percent in April-June from a year earlier, reversing a 6.8-percent decline in the first quarter – the first contraction since at least 1992 when official quarterly GDP records started, according to China`s National Bureau of Statistics.

The reading beats the median 1.1-percent forecast by economists surveyed by Nikkei and coincides with an AFP poll, which projected the economy would claw its way back into growth territory in the second quarter of this year. The poll also forecast that China will be the only major economy to experience positive growth this year.

"China`s GDP growth rebounded rapidly in the second quarter, thanks to the successful epidemic control, orderly resumption of work and production, and supportive government policies," said Bai Ming, deputy director of the international market research institute of Chinese Academy of International Trade and Economic Cooperation.

The Wall Street Journal has said China`s strategy of early lockdowns as well as the modest stimulus are paying economic dividends. "China is experiencing something far closer to a V-shaped recovery than any other major economy. Growth is likely to slow in the second half but still be faster than in most other places," wrote the newspaper.

The U.S. suffered its biggest economic decline since the government began recording the index after World War II in the second quarter of 2020 as the novel coronavirus continues to ravage the economy, leaving business shut and tens of millions unemployed.

Its GDP plunged 32.9 percent on an annualized basis, following a five-percent decline in the first quarter. The historic crash is far worse than the 8.4-percent quarterly drop during the 2007-2009 Great Recession. Before the COVID-19 pandemic, the largest drop in GDP on record was 10 percent in 1958.

On the last day of August, data released by India`s National Statistics Office showed that the country`s GDP in the April-June quarter this year dropped by 23.9 percent year on year. The Indian media pointed out that this was the biggest decline since the country began to release quarterly economic data in 1996, and it was worse than the pessimistic expectations of most economists.

On September 2, the Australian Bureau of Statistics again disclosed that the country`s GDP had shrunk by seven percent from the previous quarter in Q2, marking the largest decline since 1959 on record.

The country joins the United States, Japan, UK and Germany in technical recession, defined as two straight quarters of decline, in Australia`s first such downturn since 1991.

The UK economy contracted by 21.7 percent year on year in the second quarter, France by 18.9 percent, Spain 22.1 percent, Italy 17.7 percent and Germany 11.3 percent. The whole euro zone witnessed a 15-percent slide and Japan contracted by 9.9 percent in the April-June period.

In addition to the world`s major economies, South Africa`s central bank expects economy to shrink a stunning 40.1 percent in Q2, letting alone Argentina immersed in negative growth since 2018.

Aside from these, a finance ministry report published in July showed Saudi Arabia had notched up a deficit of 109.2 billion riyals (29.12 billion U.S. dollars) in the second quarter this year in that low oil prices hurt revenues. The world`s largest oil exporter`s Q2 oil revenues fell by 45 percent year on year to 25.5 billion U.S. dollars, with total revenues dropping 49 percent to settle at nearly 36 billion U.S. dollars.

Among the G20 member countries hit by the COVID-19 pandemic, China is the only country that resumed its growth trajectory in the April-June period, with the rest fizzling into nothing or on cusp of recession.

When the total tally of confirmed cases in the United States was over six million and the number of cases in India was approaching four million, foreign netizens and media outlets were still quarreling over which of these two countries` economic performance was worse.

For instance, a chart by Business Today shows that the U.S. economy has fallen by 32.9 percent and India by 23.9 percent. Some Indian social media influencers used this data comparison to emphasize that India is not the only one going through a recession.

But it is worth noting that the epic 32.9 percent is a quarter-on-quarter decline was calculated on an annualized basis. The adjusted data by the U.S. government on August 27 showed that the U.S. GDP contracted by 9.1 percent year over year from April to June, lower than India`s 23.9 percent.

Gita Gopinath, chief economist of the International Monetary Fund, posted a tweet concerning G20 members` quarter-on-quarter GDP growth in the second quarter, which indicated India had the worst quarterly slump.

The expert noted the graph "puts G20 growth numbers on a comparable scale, quarter-on-quarter non-annualized. Should expect rebounds in Q3 but 2020 overall will see major contractions. China recovers strongly in Q2 after collapse in Q1."

In practical terms, heated disputes over who is the "tail ender" at this time bears no significance and will not help the economy recover at a faster clip. Such a war of words has also spread to the discussion about China`s GDP data, manifested in a mixture of envy, jealousy and positive comments.

And now what can really drive economic growth and hand people normal lives should be the anti-pandemic measures that put lives first and the opportune control over the contagious disease.

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06.07.2020 20:46 World Economy Review - June 2020

The International Monetary Fund slashed its economic forecasts once again on Wednesday and warned that public finances will deteriorate significantly, as governments attempt to combat the fallout from the coronavirus crisis.

The IMF now estimates a contraction of 4.9% in global gross domestic product in 2020, lower than the 3% fall it predicted in April.

“The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said in its World Economic Outlook update.

The fund also downgraded its GDP forecast for 2021. It now expects a growth rate of 5.4% from the 5.8% forecast made in April (the positive reading reflects that economic activity will be coming from a lower base following 2020′s heavy contraction).

The Washington-based institution explained that the downward revisions were due to social distancing measures likely remaining in place during the second half of the year, with productivity and supply chains being hit. And in those nations still grappling with high infection rates, the fund expects that longer lockdowns will dent economic activity even more.

The IMF cautioned that the forecasts are surrounded with unprecedented uncertainty and economic activity will depend on factors such as the length of the pandemic, voluntary social distancing, changes to global supply chains and new labor market dynamics.

“The steep decline in activity comes with a catastrophic hit to the global labor market,” the IMF said, indicating that the global decline in work hours in the second quarter of the year is likely to be equivalent to a loss of more than 300 million full-time jobs.

“The hit to the labor market has been particularly acute for low-skilled workers who do not have the option of working from home. Income losses also appear to have been uneven across genders, with women among lower-income groups bearing a larger brunt of the impact in some countries,” the IMF said.

Looking at country forecasts, the United States is expected to contract by 8% this year. The IMF had estimated a contraction of 5.9% in April. Similarly, the fund also downgraded its forecasts for the euro zone, with the economy now seen shrinking by 10.2% in 2020. Brazil, Mexico and South Africa are also expected to contract by 9.1%, 10.5% and 8%, respectively.

In order to mitigate some of the economic impact from the pandemic, governments across the world have announced massive fiscal packages and new borrowing. As a result, public finances are seen deteriorating significantly as a result.

“The steep contraction in economic activity and fiscal revenues, along with the sizable fiscal support, has further stretched public finances, with global public debt projected to reach more than 100% of GDP this year,” the fund said.

Under the IMF`s base case, global public debt will reach an all-time high in 2020 and 2021 at 101.5% of GDP and 103.2% of GDP, respectively. In addition, the average overall fiscal deficit is set to soar to 13.9% of GDP this year, 10 percentage points higher than in 2019.

There have been more than 9 million confirmed infections worldwide from Covid-19, according to Johns Hopkins University. The United States, Brazil and Russia are currently the nations with the highest number of cases globally.

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05.04.2020 19:41 World Economy Review - March 2020

The coronavirus crisis is crushing global economic growth, according to Fitch Ratings in its latest quarterly "Global Economic Outlook” (GEO). "The level of world GDP (gross domestic product) is falling. For all intents and purposes we are in global recession territory," said Brian Coulton, chief economist at Fitch.

The firm has nearly halved its baseline global growth forecast for 2020 to just 1.3 per cent from 2.5 per cent in the December 2019 GEO. The revision leaves 2020 global GDP US$850 billion lower than in the previous forecast. “But we could very easily see an outright decline in global GDP this year if more pervasive lockdown measures have to be rolled out across all the G7 economies.

“Emergency macro policy responses are purely about damage limitation at this stage but should help secure a `V-shaped` recovery in 2H20, although this assumes that the health crisis eases.” Fitch said the shock to the Chinese economy had been very severe.

“GDP is likely to fall by over five per cent (not annualised) in 1Q20 and to be down by one per cent year-on-year. Falling GDP in China is virtually unprecedented and, in the near term at least, these numbers look worse than most previous hypothetical `hard-landing` scenarios.”

The good news is that the daily number of new Covid-19 cases in China has fallen very sharply, which should pave the way for a marked economic recovery in 2Q19 - high-frequency indicators already point to this starting in March.

Nevertheless, Fitch said the delayed impact of supply-chain disruptions and lower Chinese demand on the rest of the world would continue to be felt profoundly for some time, particularly in the rest of Asia and the eurozone.

The interruptions to economic activity seen in China - and now in Italy - are on a scale and speed rarely seen other than during periods of military conflict, natural disasters or financial crises. Even though Fitch expects a recovery in China from 2Q20, Chinese growth is expected to fall just 3.7 per cent for the year as a whole, down from 6.1 per cent in 2019.

“We forecast Italian GDP to fall by teo per cent this year and Spanish GDP by almost one per cent,” it added. Fitch said its baseline forecasts do not yet assume that full-scale lockdowns take place in across all the major European countries or the US (forecasts were finalised on 16 March).

”But even on this basis we now expect eurozone growth to be minus 0.4 per cent this year. The baseline forecast for US growth is one per cent in 2020 compared with a pre-virus outlook of two per cent and GDP is expected to fall by 0.5 per cent (or two per cent annualised) in 2Q20.“

It expects global growth to fall to 1.3 per cent in 2020 from 2.7 per cent in 2019, which would be weaker than global downturns in the early 1990s and in 2001. Fitch`s oil price forecast has been lowered to US$42/bbl (Brent) for 2020 (annual average) from US$62.5/bbl in the December GEO.

“With the collapse of `OPEC+` co-operation boosting prospects for OPEC supply, we now expect oil prices to average US$48/bbl in 2021 compared to our previous forecast of US$60/bbl,” it said.

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24.02.2020 21:25 World Economy Review - January 2020

Moody`s has revised its global GDP growth forecast down considering the adverse impact of COVID-19 on the world`s economy.

“We have revised our global GDP growth forecast down, and we now expect G-20 economies to collectively grow 2.4% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021,” Moody`s said in a report.

“We have reduced our growth forecast for China to 5.2% in 2020 and maintain our expectation of 5.7% growth in 2021. We have also lowered our real GDP growth forecast for Australia, Korea and Japan on account of the coronavirus,” it said.

Additionally, it has reduced its growth projections for India, Mexico and South Africa, a reflection of domestic challenges in those countries rather than external factors.

Stating that the coronavirus outbreak had diminished optimism about prospects of an incipient stabilization of global growth this year, Moody`s said since the virus was continuing to spread, it was still too early to make a final assessment of the impact on China and the global economy.

“Our baseline assumes the outbreak will cause disruption in Q1 economic activity. Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2,” it said.

At present, China`s economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains, the rating agency said.

The effects on the global economy could compound if the rate of infection did not abate and the death toll continued to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy, it added.

On the impact on India, it said that the economic recovery will likely be shallow.

“India`s economy has decelerated rapidly over the last two years. Real GDP grew at a meagre 4.5% in Q3 2019. Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized,” it said.

“While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected. Accordingly, we have revised our growth forecasts to 5.4% for 2020 and 5.8% for 2021, down from our previous projections of 6.6% and 6.7%, respectively,” it added.

A key to stronger economic momentum would be the revival of domestic demand, both rural and urban. But equally important is the resumption of credit growth in the economy, Moody`s said.

“As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks. Banks have been both unwilling to lend and to lower lending rates despite successive interest rate cuts by the central bank,” it said.

“As a result, non-food bank credit growth decelerated to 7.0% in nominal terms in December 2019, down sharply from 12.8% a year earlier. The deterioration in credit growth to the commercial sector is particularly stark,” it added.

Nominal credit to industry grew at only 1.6% year-on-year in December 2019, while credit to the services sector registered 6.2% nominal growth, and credit to agriculture and related activities grew 5.3%, Moody`s said.

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