The world economy likely returned to its pre-pandemic size in the spring, according to economists, marking an extraordinary comeback from the deepest global downturn in decades. But new variants of Covid-19 are casting a cloud over the global expansion, disrupting manufacturing powerhouses in Asia, leaving some Western consumers on edge and driving a wedge between rich and poor countries.
In Europe and North America, businesses and households are starting to look tentatively beyond the pandemic, thanks to widespread vaccinations. But governments in parts of Asia are introducing new social restrictions and spending plans to combat the fast-spreading Delta variant. Meanwhile, Africa’s low vaccination rate means its economic recovery is expected to lag other regions.
Close to 40% of the population in advanced economies has been fully vaccinated against Covid-19, compared with 11% in emerging market economies, according to the International Monetary Fund.
That, along with large-scale government spending, has spurred a burst of pent-up spending by consumers in rich countries. The rapid return of Western economies has in turn stretched global supply chains, strained labor markets and, alongside resurgent demand, driven inflation to multiyear highs. That is putting pressure on central banks to start phasing out aggressive easy-money policies to cool their economies, which could weigh on the recovery.
The eurozone economy grew at an annualized rate of 8.3% in the three months through June, outpacing the larger U.S. economy and ending a brief recession in the winter months, according to data published by the European Union’s statistics agency on Friday. EU officials expect the bloc’s economy to return to its pre-pandemic size during the final quarter of this year.
In the U.S., economic output grew at an annual rate of 6.5% in the second quarter and rose above its pre-pandemic level, powered by an extraordinary increase in consumer spending and business investment.
Shipping bottlenecks and commodities costs are helping drive inflation in the U.S. WSJ visits a patio-furniture factory in China to see why refurbishing your backyard could be pricier this year. Photo: Patrick Fok
The Wall Street Journal Interactive Edition
The return of the U.S. economy to its pre-pandemic size and the second-quarter growth of the eurozone means the world economy has returned to its 2019 size, according to economists at Capital Economics and Oxford Economics. The eurozone’s stronger than expected expansion probably closed the gap in global output, said economists at the Organization for Economic Cooperation and Development, a think tank. The IMF expects the global economy to grow by 6% this year.
“It’s like no other recession and no other recovery,” said Neil Shearing, chief economist at Capital Economics. “The strength of the recovery has been surprising because old tools and frameworks for thinking about recessions did not apply. I think it does have legs and unlike other crises we will get back to the precrisis trend.”
Annualized data measures the amount that an economy would grow if it continued expanding at the same pace over the course of a year. Compared with the first quarter of 2021, the eurozone economy grew by 2% in the second quarter.
“Everyone is still unsure about the impact of this [Delta] variant, but we don’t see hesitation to place orders,” said
Pfeiffer Vacuum Technology AG
, a German manufacturer of vacuum pumps that has seen orders jump more than 40% in the past year.
French luxury group
LVMH Moët Hennessy Louis Vuitton
on Monday reported revenue of €28.7 billion for the first half of 2021, 14% higher than the same period in 2019. In Italy, revenue at Giorgio Armani SpA increased by about a third in the first half of 2021 from a year earlier, driven by strong sales in China and the U.S.
While widespread vaccinations in Western countries have sparked an economic boom, in Asia the resurgence of Covid-19 this summer has hammered consumer sentiment in many countries and unsettled the region’s manufacturing supply chains, a bright spot of global activity during the pandemic as stay-at-home workers ordered more consumer goods.
Factory activity in China expanded at a slower pace in June, in part due to disruptions at one of the nation’s largest ports caused by the Covid outbreak. Consumer spending, which hasn’t yet recovered to pre-pandemic levels, could take a further hit as new clusters of the Delta variant were detected at more than a dozen cities this week, prompting strict lockdown measures.
Uneven global growth is “an important feature of this recovery” that could weigh on the powerful U.S. expansion, Federal Reserve Chair
The company expects its revenue to more than double over the next five years, to €3 billion, equivalent to around $3.6 billion. It is hiring hundreds of workers in Europe and plans to hire around 5,000 to staff a new €1.7 billion factory in Malaysia.
But while Mr. Gerstenmayer sees no slowdown in China, “in other Southeast Asian countries, we see that the Covid situation is worsening.”
In Germany, Europe’s biggest economy and manufacturing powerhouse, business sentiment dimmed in recent weeks as companies worried about supply-chain bottlenecks and rising Covid-19 infection numbers, according to a closely watched survey by the Ifo think tank. German inflation rose to 3.1% in July, its highest level since August 2008.
Greek and Spanish authorities recently imposed new social restrictions in the holiday island of Mykonos and the region of Catalonia to combat rising infections. International tourist arrivals to Europe were down by 85% for the first five months compared with the same period in 2019, according to data from the U.N. World Tourism Organization.
In Asia, slow vaccine rollouts are disrupting some economies. In Indonesia and Vietnam, some industrial zones were recently ordered to operate at limited capacity to prevent the spread of cases, potentially disrupting supply chains of consumer goods.
Pou Chen Group,
a supplier to sneakers brands including
and Adidas, halted its factory operation in Ho Chi Minh City for part of July.
Thailand’s finance ministry cut the country’s 2021 growth forecast to 1.3%, from 2.3% on Thursday as the country, which relies heavily on foreign tourists, has struggled to contain the largest Covid-19 outbreak to date. Japanese car maker Toyota said it would continue to halt production at factories in Thailand from late July into early August as the resurgence of Covid in Southeast Asia led to a shortage of components.
The IMF this week lowered its growth forecast for five Southeast Asian countries—Indonesia, Malaysia, Philippines, Thailand and Vietnam.
In Africa, several major economies, including South Africa, have in recent weeks implemented new lockdowns to slow a record surge of Covid-19 infections driven by the Delta variant.
The IMF expects Africa’s largest economy, Nigeria, to grow just 2.5% in 2021, despite the rise in oil prices, while the South African Reserve Bank says it will take Africa’s most developed economy until some time in 2023 to reach its pre-pandemic output.
Ralph Varathaiah in January started operating his South African-Indian fusion restaurant from home after he accumulated nearly $14,000 in missed rental payments for its former premises in a busy Johannesburg shopping center.
He is now trying to support his own family, plus three employees, through Uber Eats and other takeaway orders. “We don’t know what’s going to happen in the next six months,” he said. “We are just trying our best to keep things afloat.”
Meanwhile, many businesses have become more efficient as the pandemic forced them to switch up their business models and embrace technological change. The U.S. economy has returned to its pre-pandemic level of output despite having around seven million fewer workers.
The massive decline in business and leisure travel last year sharply reduced sales at
a Munich-based car-rental company. It responded by reducing its fleet, cutting staff and introducing new services such as long-term rentals, said co-CEO Alexander Sixt.
The company also automated and streamlined its processes, eliminating low-margin business. It invested in a pricing system that helps to optimize car usage and rates. Its revenue is now bouncing back strongly, while its costs are up to 15% lower than in 2019, Mr. Sixt said.
US economy continues to strengthen despite Delta, says Fed – BBC News
The US economy continues to strengthen, albeit at a slower rate because of the Delta variant of Covid, the US Federal Reserve has said.
The central bank said the jobs market was improving and that currently high rates of inflation remained transitory.
It said it may start reducing its emergency support for the economy “soon”, but did not say when.
Half of its policymakers also projected interest rates will need to rise in 2022 from current rock-bottom levels.
The US economy has rebounded strongly this year from its pandemic lows, but there are fears Delta will derail the recovery.
The country added fewer jobs than expected in August as rising infections hit spending on travel, tourism and hospitality.
Inflation, which measures the increase in the cost of living over time, is running at 5.3% – the highest in nearly 13 years. It comes amid surging consumer demand, rising energy prices, and supply chain-related shortages.
Despite this, the Federal Open Market Committee (FOMC), which sets US monetary policy, said overall indicators of economic activity “have continued to strengthen”.
“The sectors most adversely affected by the pandemic have improved in recent months, but the rise in Covid-19 cases has slowed their recovery,” it said.
“Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses.”
‘Broadly as expected’
The FOMC said the path of the economy still depended “on the course of the virus”. And it expects to keep monetary policy loose until more progress is made on stabilising unemployment – which stands at 5.2% – and consumer prices.
However, it said if progress continues “broadly as expected”, it may soon pare back its $120bn-a-month bond-buying programme which has helped keep borrowing rates low.
Analysts said the bank was taking a cautious approach, noting no formal date was set for pulling back support.
“While the Federal Reserve has laid the groundwork for an eventual taper [of asset purchases] later this year, the Fed erred on the side of caution given that the macroeconomic landscape has deteriorated somewhat over the last few months,” said Candice Bangsund, a portfolio manager at Fiera Capital.
“Preconditions for a formal taper announcement will largely depend on economic conditions over the coming months, with an emphasis on data dependence.”
Gurpreet Gill, a macro strategist at Goldman Sachs, said ongoing supply chain disruption, the spread of Delta and higher inflation still weighed on the minds of Fed committee members.
“Given uncertainty around the health of labour market and inflationary pressures, we would not be surprised if the ‘dot plot’ changes again in the coming months as the pace of the recovery and underlying inflation dynamics become clearer.”
The Fed has two goals. It aims to keep US inflation at about 2% and to achieve maximum employment, whereby everyone who needs a job has one.
During the pandemic it has supported the economy by slashing interest rates to historic lows and pumping billions of dollars into the financial system by buying government and corporate bonds.
Low Vaccination Rates are Hurting Southeast Asia's Economy: ADB – The Diplomat
Economic growth in Southeast Asia is beginning to fall behind other parts of the region due to the region’s continued struggles with outbreaks of the disease and the sluggish rollout of COVID-19 vaccines, the Asian Development Bank said today.
In an update to its Asian Development Outlook report, the Manila-based multilateral bank stated that growth in the 46 nations of what it terms “developing Asia” is projected to reach 7.1 percent this year, down slightly from its 7.3 percent forecast in April. Despite this small downgrade, this year’s growth estimate is a marked improvement over the 0.1 percent contraction that the region saw last year.
Within the region, however, “growth paths are diverging, with economies that have successfully contained the pandemic or are making good progress on vaccination programs forging ahead,” the report stated.
Among the problem regions is Southeast Asia, where the ADB has cut its growth projections due to the region’s struggle to contain outbreaks of COVID-19, continued lockdowns and restrictions, and slow vaccine rollouts.
Southeast Asia’s regional growth projections for 2021 and 2022 have been lowered to 3.1 percent and 5.0 percent, respectively, from forecasts of 4.4 percent and 5.1 percent in April. The region has also seen the largest gap – 8.6 percent – between economic forecasts for 2021 and pre-pandemic projections.
“Southeast Asia will recover at a much slower pace than earlier projected,” the report stated, resulting in weaker than expected growth rates in nine out of the subregion’s 11 economies. It added that the region’s recovery “continues to be curtailed by recurring spikes of COVID-19 cases, resulting in the reimposition of stringent containment measures in some economies, including the Philippines.”
The downgrade is more significant in the case of certain major economies in the region, including Thailand (0.8 percent down from 3 percent in April), Indonesia (3.5 percent down from 5 percent), and Malaysia (4.7 percent down from 6 percent).
Vietnam, which had the distinction of being the only Southeast Asian nation to register positive growth in 2020, has seen its outlook for 2021 slashed from 6.7 percent in April to 3.8 percent now.
Myanmar, in the throes of a severe political crisis, will see its GDP contract by an astounding 18.4 percent this year, down from what now seems like an optimistic projection of a 9 percent contraction in April.
The one Southeast Asian nation to see an upgrade in its economic outlook was Singapore, where high vaccination coverage – the country has fully vaccinated more than three-quarters of its population – will “continue allowing the economy to benefit from the rise in global demand.”
While much of Southeast Asia managed to avoid the worst of the pandemic in 2020, the Delta variant of the virus has scythed its way through many countries in the region in recent months. This has exposed governments’ complacency in sourcing vaccines, with just three of the region’s 11 nations – Singapore, Cambodia, and Malaysia – having fully vaccinated a greater proportion of their populations than the United States (51.8 percent of the population) and the European Union (58 percent). Six have fully vaccinated less than a third.
According to the ADB report, “the uneven progress of vaccinations is contributing to the divergence of growth paths in developing Asia,” as economies like China, Singapore, and Taiwan that have vaccinated larger proportions of their populations experience a quicker recovery from the pandemic slump. In its report, the ADB raised its forecast for “developing” East Asia, a region that includes China and South Korea, by 0.2 percentage points to 7.6 percent.
The development suggests that the impacts of Southeast Asia’s sluggish reaction to the latest outbreaks of COVID-19, including both the avoidable delays in beginning vaccine distribution and the unavoidable challenges of gaining access to adequate supplies, will continue to have long-term economic effects.
Even then, the region will remain vulnerable to a host of challenges, “including the emergence of new variants, waning vaccine effectiveness, geopolitical tensions, and the resulting disruptions to global supply chains.
ECB Says Ignoring Climate Change May Decimate Europe's Economy – Bloomberg
A failure to introduce policies to mitigate climate change could significantly lower Europe’s economic output by the end of the century, according to the European Central Bank.
Coronavirus: What's happening in Canada and around the world on Wednesday – CBC.ca
Media availability following Council meeting – ottawa.ca
Sudbury med-tech firm lands $8M in investment funds – Northern Ontario Business
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
Business13 hours ago
Three Ways to Use Social Media to Impress Employers and Recruiters
News6 hours ago
A MADE IN CANADA, WORLD FIRST SOLUTION, FOR APPLYING ALCOHOL WARNING LABELS
Sports13 hours ago
Blue Jays-Rays data card scandal a new case study for sportsmanship in MLB – Sportsnet.ca
Sports23 hours ago
Training camp questions: Edmonton Oilers – TSN
Business22 hours ago
Oil Prices Jump As Crude, Fuel Inventories Continue To Fall – OilPrice.com
Science23 hours ago
Elon Musk trolls Biden with Trump line over perceived Inspiration4 snub – CNET
Investment13 hours ago
Mackenzie Investments Announces Name, Risk Rating and Investment Strategy Changes for Select Mutual Funds – Canada NewsWire
Politics22 hours ago
Politics Briefing: Meet the new Parliament, same as the old Parliament – The Globe and Mail