A powerful recovery in the U.S., primed by massive government spending and a rapid vaccine rollout, is already rippling around the world, brightening the economic prospects for countries closely tied to the American economy.
But economists say the coming U.S. boom could presage a two-speed recovery from the extraordinary economic downturn of the past year, a schism that threatens to open fissures in the global economy.
While lockdowns and Covid-19 restrictions hit many economies last year in roughly equal measure, early evidence shows that the exit from the pandemic could be greatly lopsided.
Rich countries and some export-driven economies are already enjoying the early fruits of successful vaccine campaigns and resurgent growth.
SHARE YOUR THOUGHTS
How do you expect the post-Covid expansion to look different from the post-2008 recovery? Join the conversation below.
Instead, poor nations are seeing nascent signs of capital outflows being lured to rich countries. Meanwhile, those countries face a long wait for vaccines and some are suffering fresh Covid-19 waves that leave them cut off from the travel and tourism flows that have supported their economies in recent years.
The U.S. economy is expected to grow by around 6.5% this year, the fastest since 1984. That surge could leave the U.S. economy even larger at the end of this year that it was forecast to be before the pandemic, according to the Organization for Economic Cooperation and Development.
No other major economy, not even China, is likely to boast that. Economists expect the U.S. to be the main driver of global growth this year.
The U.S. vaccination program, which is faster than those in most of Europe and Asia, has allowed a more rapid return to normal economic activity. But the U.S. decision to pursue a far larger second round of relief and stimulus has been especially decisive. Very few other rich countries have spent as much as the U.S., and poor countries can’t afford such largess.
A red-hot U.S. economy is in turn speeding recoveries elsewhere, particularly for export-oriented countries selling goods to American shoppers.
That is a boon to countries like Vietnam. The U.S. stimulus alone will add 1.4% to Vietnamese gross domestic product over the next two years, second only to the slightly larger impact on Mexico, according to estimates by financial services companies
and Euler Hermes. That will help offset the large hit that Vietnam—which has largely contained Covid-19 cases—has suffered from a collapse in tourism.
In Thailand, exports are forecast to rise by 3%-5% this year, with 10%-11% growth in U.S. sales expected to balance out against minor declines in Europe and China, according to Supan Mongkolsuthree, president of the Federation of Thai Industries.
Thailand’s automotive parts industry, the largest in Southeast Asia, may bounce back to around $22 billion in overseas sales this year, returning to 2019 levels after a 14% fall last year, according to the Thai Auto-Parts Manufacturers Association, with U.S. demand for tires helping to sustain the recovery.
The strength of the U.S. recovery is piling more pressure on the already stretched, globe-spanning supply chains that deliver everything from smartphones to children’s clothing.
Brompton Bicycle Ltd. is a London-based maker of folding bicycles that are popular with commuters in its home city. It has hired new workers and added a third production line during the pandemic.
But even though it is allocating a “preferential” share of its output to the U.S. as it plots a big expansion in key cities such as New York, Chicago and San Francisco, it can’t keep up with demand. Finding parts from Asia has become a problem, as has shipping.
“Demand is growing ahead of supply,” said Stephen Loftus, Brompton’s chief commercial officer. “We face many frustrations on a day-to-day basis.”
Those frustrations are likely to worsen in the immediate future, thanks to delays stemming from the grounded cargo ship that stopped traffic recently in the Suez Canal. “We don’t yet know the knock-on effects of that, but it will have an effect on everyone,” Mr. Loftus said.
While U.S. growth will lift many boats, it won’t lift all of them. For instance, the boost is likely to be modest for Europe, with economists at the European Central Bank estimating that U.S. stimulus will raise eurozone economic growth to 4.1% from 4% this year, and to 4.3% from 4.1% in 2022.
The eurozone, where vaccinations are proceeding at a glacial pace, is expected to be mired in an economic downturn for months to come—a sharp divergence with the U.S. that could leave durable scars on the jobs market or on capital investments.
Meanwhile, the world’s poorest countries aren’t likely to vaccinate large portions of the population for months or even years to come. That will leave many cut off from the tourism industry that has created jobs and lifted economies in recent years.
Clayton Fletcher, who runs a luxury safari and hunting lodge in South Africa’s North West province, made it through 2020 by killing animals, selling the meat and dropping rates for local hunters. He took out bank loans to keep paying his staff.
In February, the lodge hosted its first international tour groups since November 2019 but has had 16 cancellations for this year so far from the U.S., Canada and Europe.
“Our business is dependent on other countries,” Mr. Clayton said. A more contagious variant first identified in South Africa has worsened the outlook for his business “With this new strain here, unfortunately, people are scared,” he says.
Even as the United Nations Conference on Trade and Development last month raised its U.S. growth forecast for this year, it lowered its projections for Africa. Indeed, Africa’s economy is expected to grow more slowly than that of the U.S., a gap that will be wider on a per-person basis given that the continent’s population is expanding at a more rapid rate.
“Covid-19 descended on the poor like wildfire,” said David Malpass, president of the World Bank in a virtual speech to the London School of Economics. “In the pandemic of inequality, poorer countries are falling further behind.”
The strength of the U.S. recovery could make those disparities even worse if the new wave of government spending pushes inflation sharply higher and forces the U.S. Federal Reserve to raise its key interest rate much earlier than it now expects to.
Because of the U.S. dollar’s outsize role in global finance and trade, such a move by the Fed would also raise borrowing costs for many countries where recoveries are expected to be much slower.
“What the U.S. is doing in terms of massive fiscal stimulus combined with relatively loose monetary policy is on net beneficial for the world,” said
president of the Peterson Institute for International Economics. “The big negative side is what happens if this is a boom-bust cycle—what happens if we’re not only overheating but that we’re forced to tighten faster and more than currently priced in markets?”
The IRS sent roughly 90 million stimulus checks to Americans in March. WSJ’s chief economics commentator Greg Ip explains why stimulus checks alone are unlikely to spur inflation. Photo Illustration: Carlos Waters
The Wall Street Journal Interactive Edition
New Zealand's Economy Was Humming Prior to Delta Lockdown – BNN
(Bloomberg) — New Zealand’s economy was expanding at a rapid pace before a nationwide lockdown interrupted its momentum, latest data show.
Gross domestic product climbed 2.8% in the second quarter after jumping 1.4% in the first, Statistics New Zealand said Thursday in Wellington. Economists forecast a 1.1% gain. From a year earlier, when the country was in its initial pandemic lockdown, the economy expanded 17.4% against expectations of 16.1% growth.
Today’s report will do nothing to dissuade the central bank from raising interest rates at its next meeting on Oct. 6 as it frets about mounting inflation pressures. While a contraction is expected in the current quarter after an outbreak of the delta strain of coronavirus prompted a three-week national lockdown, last year’s experience shows that demand quickly bounces back when restrictions are lifted.
The New Zealand dollar rose on the data. It bought 71.29 U.S. cents at 10:47 a.m. in Wellington, up from 71.2 cents beforehand.
©2021 Bloomberg L.P.
Global economy projected to show fastest growth in 50 years – UN News
In its new report released on Wednesday, the agency said that the rebound was highly uneven along regional, sectoral and income lines, however.
During 2022, UNCTAD expects global growth to slow to 3.6 per cent, leaving world income levels trailing some 3.7 per cent below the pre-pandemic trend line.
The report also warns that growth deceleration could be bigger than expected, if policymakers lose their nerve or answer what it regards as misguided calls for a return to deregulation and austerity.
Differences in growth
The report says that, while the response saw an end to public spending constraints in many developed countries, international rules and practices have locked developing countries into pre-pandemic responses, and a semi-permanent state of economic stress.
Many countries in the South have been hit much harder than during the global financial crisis. With a heavy debt burden, they also have less room for maneuvering their way out through public spending.
Lack of monetary autonomy and access to vaccines are also holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another “lost decade”.
“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD.
“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.”
Lessons of the pandemic
UNCTAD includes several proposals in the report that are drawn from the lessons of the pandemic.
They include concerted debt relief and even cancellation in some cases, a reassessment of fiscal policy, greater policy coordination and strong support for developing countries in vaccine deployment.
Even without significant setbacks, global output will only resume its 2016-19 trend by 2030. But even before COVID-19, the income growth trend was unsatisfactory, says UNCTAD. Average annual global growth in the decade after the global financial crisis was the slowest since 1945.
Despite a decade of massive monetary injections from leading central banks, since the 2008-9 crash, inflation targets have been missed. Even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices.
After decades of a declining wage share, real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again, according to the trade and development body’s analysis.
Food prices and global trade
Despite current trends on inflation, UNCTAD believes the rise in food prices could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis.
Globally, international trade in goods and services has recovered, after a drop of 5.6 per cent in 2020. The downturn proved less severe than had been anticipated, as trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier.
The report’s modelling projections point to real growth of global trade in goods and services of 9.5 per cent in 2021. Still, the consequences of the crisis will continue to weigh on the trade performance in the years ahead.
For director of UNCTAD’s globalization and development strategies division, Richard Kozul-Wright, “the pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis.”
“In less than a year, wide-ranging US policy initiatives in the United States have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level.”
The report highlights a “possibility of a renewal of multilateralism”, pointing to the United States support of a new special drawing rights (SDR) allocation, global minimum corporate taxation, and a waiver of vaccine-related intellectual property rights.
UNCTAD warns, though, that these proposals “will need much stronger backing from other advanced economies and the inclusion of developing country voices if the world is to tackle the excesses of hyperglobalization and the deepening environmental crisis in a timely manner.”
For the UN agency, the biggest risk for the global economy is that “a rebound in the North will divert attention from long-needed reforms without which developing countries will remain in a weak and vulnerable position.”
From Coordination to Collapse in Rigged Economies – Physics
September 15, 2021• Physics 14, 129
A game-theoretical model of a rigged economy predicts the emergence of cartels followed by a risk of instability as the economy becomes more complex.
“The economy is rigged!” This claim, which was voiced by both Bernie Sanders and Donald Trump during their 2016 presidential campaigns, might be the only belief shared by people from opposite ends of the political spectrum. But what does “rigging” mean for the economy and its dynamics? Luís Seoane at the National Center for Biotechnology in Spain has now addressed this question by modeling the economy as a system of “games” that agents can rig—for a price . The study reveals that the rigged economy undergoes a sequence of transitions as its complexity and size increase, with “cartels” forming and then dissolving. Although these transitions appear to imply that economic development will ultimately make the economy fairer, Seoane shows that if an economy’s size does not keep pace with its rising complexity, large fluctuations in wealth distribution can occur, causing inequality to rise steeply and making the economy liable to collapse.
The use of games to study economic phenomena dates back to the work of John von Neumann in the middle of the last century . The theory quickly became the lingua franca for economists and subsequently emerged as an area of inquiry for the physics community. For example, statistical physicists have shown that versions of the “minority game”—in which several agents choose between two possibilities, with the option chosen by fewest agents becoming the winning choice—can be used to explore the rich emergent properties of simple adaptive systems .
Minority games can be used to model situations in which agents compete for scant resources—including financial markets. However, the economy is also marked by phenomena in which the advantage lies with those in the majority, for example, when positive feedback reinforces a particular choice, such as joining a boycott . Seoane shows that rigged economies exhibit features of both minority and majority games [5, 6].
In Seoane’s model, multiple agents engage in a number of games simultaneously. Each game involves choosing one of two possible actions. An agent can also choose to pay to rig a game to favor its choice. The winning choice in each round is the action chosen by the majority of the agents who have paid to intervene. Increasing the number of games played in each round increases the degrees of freedom in the economy and is thus a measure of its complexity. After each round of a game, the winners share a fixed amount of money equally. The value of the winnings multiplied by the number of games played defines the total “wealth” that can be redistributed among the agents in each round. This wealth is thus a measure of the size of the economy and, along with complexity, is a key parameter of the model.
To observe how the optimal strategy for an agent changes as the economy develops, Seoane includes in the model an evolutionary process: Agents can replicate themselves after each round, such that each offspring has a high probability of adopting the same strategy as its parent. Since replication costs a fixed amount, more successful agents reproduce in greater numbers.
Seoane observes that, for a fixed level of complexity, a small economy yields agents with diverse strategies and a general preference to be in the minority when they win (to claim more of the prize pot in each round). As the economy increases in size, more wealth becomes available for agents to create progeny, as well as to pay the intervention costs required to rig games. Then, agents switch from playing minority games to majority games, meaning growing economies transition to coordination between agents (cartel formation), with an accompanying drop in strategic diversity. However, if the complexity (the number of games per round) increases faster than the economy grows, the relative returns per game are diminished, causing agents to seek minority positions across multiple games. This switch leads to the dissolution of cartels and a rise in the diversity of strategies employed by the agents.
Seoane also studies how an economy fares under other size-complexity relations. For example, he finds that when the amount disbursed in each game is constant, such that the size of the economy increases linearly with the number of games, there is a critical “complexity threshold” at which the distribution of agent-population size transitions from unimodal to bimodal. This transition gives rise to extremely large fluctuations in agent populations that threaten the stability of the economy. The distribution of agent wealth also exhibits a crossover at this point, becoming broad-tailed in the large-fluctuation regime, indicating rising inequality among agents. A reader familiar with the world’s economy today will likely see eerie parallels with this regime of the model.
It could be argued that some of the outcomes observed by Seoane come from the specific choices he makes in constructing the model. For example, the transition to coordinated action as the economy grows might result from the assumption that intervention costs are constant. In reality, intervention costs are related to the size of the economy and vary between players. Another important limitation of the model is that all agents are equally able to rig games—an assumption that misses the asymmetric influence of the wealthy in real economies .
Even with these limitations, Seoane’s model is significant in that it provides a framework for others to explore the ramifications of real-world rigged economies, such as those in which information is unevenly distributed among agents. Modifying the model might, for example, reveal how informationally disadvantaged agents can use the emergence of coordination to obtain advantage, as seen in other agent-based models . Such counter-rigging of the system by less powerful players is shown by the history of the medieval merchant guilds. Those institutions used the threat of coordinated embargo to resist arbitrary expropriation by powerful local rulers , proving that a rigged economy does not necessarily imply that David doesn’t stand a chance against Goliath.
- L. F. Seoane, “Games in rigged economies,” Phys. Rev. X 11, 031058 (2021).
- J. von Neumann and O. Morgenstern, Theory of games and economic behavior (Princeton University Press, Princeton, 1944)[Amazon][WorldCat].
- D. Challet et al., Minority games: Interacting agents in financial markets (Oxford University Press, New York, 2005)[Amazon][WorldCat].
- T. C. Schelling, Micromotives and macrobehavior (W. W. Norton, New York, 1978)[Amazon][WorldCat].
- J. Vitting Andersen and D. Sornette, “The $-game,” Eur. Phys. J. B 31, 141 (2003).
- Y. Baek et al., “Market behavior and performance of different strategy evaluation schemes,” Phys. Rev. E 82, 026109 (2010).
- J. E. Stiglitz, “The American economy is rigged,” Sci. Am. 319, 56 (2018).
- V. Sasidevan et al., “When big data fails: Adaptive agents using coarse-grained information have competitive advantage,” Phys. Rev. E 98, 020301 (2018).
- A. Greif et al., “Coordination, commitment, and enforcement: The case of the merchant guild,” J. Polit. Econ. 102, 745 (1994).
About the Author
A16z in talks to back CoinSwitch Kuber in first India investment – TechCrunch
Oilers Rookie Notebook: Dylan Holloway’s wrist injury a tough blow – Sportsnet.ca
Apple Quietly Removes 256GB iPhone SE Model From Online Store – MacRumors
Silver investment demand jumped 12% in 2019
Europe kicks off vaccination programs | All media content | DW | 27.12.2020 – Deutsche Welle
Iran anticipates renewed protests amid social media shutdown
News16 hours ago
Minister of Agriculture, Food and Fisheries Lana Popham announces plans for permanent, five-month phase out process for fur farms across British Columbia
News15 hours ago
US plans new system for international travel, contract tracing rules
Economy15 hours ago
Canadian dollar beats G10 peers as inflation hits 18-year high
Health15 hours ago
Manitoba reports 49 new COVID-19 cases, mostly among people not fully vaccinated – CBC.ca
Science24 hours ago
Bitcoin billionaires back ‘moonshot’ scheme to resurrect woolly mammoths – Cointelegraph
News14 hours ago
Gymnasts Biles, Maroney demand justice in botched FBI sex abuse probe
Health14 hours ago
COVID-19 cases at Central Okanagan seniors facilities plateau as Interior Health numbers decline – Global News
Politics14 hours ago
New Democrats’ Singh looks to dance his way to role as Canada’s kingmaker