Is global economy on right track ?
THERE are no two opinions about the health of the global economy which suffered a severe blow during last one year, while Covid19 played havoc with human lives throughout the world.
But the good news are that the global economy is recovering faster than expected from the corona virus pandemic, the International Monetary Fund (IMF) recent report says.
“The world economy is now expected to grow by 6% this year and advance another 4.4% in 2022, sharp increases from the 3.3% decline last year during the worst months of the pandemic that spread across the globe after originating in China in late 2019”, says the report.
Chief IMF economist said in Washington recently that “improved economic outlook reflects the additional fiscal support provided in the United States, UK, Europe and other major economies.
Global vaccination efforts are going to lead to a strengthening of recovery in the second half of this year, and also the continued resilience of economic activity to the pandemic in many parts of the world.”
But IMF stressed that there still is a high degree of uncertainty in the IMF’s projections because the pandemic has yet to be defeated, and the number of virus cases is accelerating in many countries.
There are varying recoveries across borders into different countries and within individual countries.
The IMF said “economies with slower vaccine rollout, more limited policy support and more reliant on tourism do less well. The biggest risk right now is still the pandemic.
If there are new virus variants that evade the vaccine, then that could lead to a sharp downgrade. But if, on the other hand, there’s faster rollout of vaccinations, then that could uplift the outlook.
IMF says the second big risk is to financial conditions. We see multispeed recoveries, and we have seen interest rates go up.
If interest rates go up even further in a more disorderly fashion, then that could have negative implications for several countries, especially for some highly vulnerable emerging and developing economies.
Government officials, as has been the case in the US will need to continue supporting their economies with aid that is likely to lead to higher debt levels than prior to the pandemic.
Better economically targeted measures are particularly important and might be needed for a prolonged period.
Given that we are not out of the woods, it is very important for policy support to be continued in this crisis.
Of course, countries are dealing with high debt levels, so they’ll have to make sure this support is better targeted and well-tailored to countries’ specific economic conditions, the stage of the recovery they are in and the structural characteristics of the economy.
IMF urged central banks to “remain accommodative” in providing extra money for their national economies.
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Economic growth is picking up in the Middle East, despite escalating social unrest, elevated geopolitical risks, and more fiscal stimulus in oil-rich economies.
The global trade-war escalation and knock-on oil-price hit will weigh on Middle Eastern bank shares, though government spending and further M&A in the U.A.E. should underpin momentum. In Saudi Arabia non-oil growth has been anemic since 2016, expanding by less than 2.5%.
But the latest data show the economy is on track to break through this threshold as the fiscal stimulus could finally show up in the growth numbers due to a lower drag from monetary policy and improved private consumption.
In terms of Gulf banking trends, improving business sentiment this year and increased government spending are likely to support a stronger lending outlook for the UAE, Saudi and Kuwaiti banks.
Digital transformation and consolidation underpin the industry’s prospects. Countries around the world are eager to position their domestic industries to benefit from digital technologies..
According to World Bank, Global growth is expected to accelerate to 5.6% this year, largely on the strength in major economies such as the United States and China.
And while growth for almost every region of the world has been revised upward for 2021, many continue to grapple with COVID-19 and what is likely to be its long shadow.
Despite this year’s pickup, the level of global GDP in 2021 is expected to be 3.2% below pre-pandemic projections, and per capita GDP among many emerging market and developing economies is anticipated to remain below pre-COVID-19 peaks for an extended period. As the pandemic continues to flare, it will shape the path of global economic activity.
A year and a half since the onset of the COVID-19 pandemic, the global economy is poised to stage its most robust post-recession recovery in 80 years in 2021.
But the rebound is expected to be uneven across countries, as major economies look set to register strong growth even as many developing economies lag.
Growth among emerging market and developing economies is expected to accelerate to 6% this year, helped by increased external demand and higher commodity prices.
However, the recovery of many countries is constrained by resurgences of COVID-19, uneven vaccination, and a partial withdrawal of government economic support measures. Excluding China, growth is anticipated to unfold at a more modest 4.4% pace.
In the longer term, the outlook for emerging market and developing economies is likely to be dampened by the lasting legacies of the pandemic – erosion of skills from lost work and schooling; a sharp drop in investment; higher debt burdens; and greater financial vulnerabilities.
Growth among this group of economies is forecast to moderate to 4.7% in 2022 as governments gradually withdraw policy support.
Among low-income economies, where vaccination has lagged, growth has been revised lower to 2.9%. Setting aside the contraction last year, this would be the slowest pace of expansion in two decades.
The group’s output level in 2022 is projected to be 4.9% lower than pre-pandemic projections.
Fragile and conflict-affected low-income economies have been the hardest hit by the pandemic and per capita income gains have been set back by at least a decade.
— The writer is former DG (Emigration) and consultant ILO, IOM.