The pandemic’s resurgence in the summer is slowing the global economic recovery as the delta variant makes efforts to revive factories, offices and schools.
Rather than enter the final months of 2021 with confidence that the acute phase of the pandemic is over, it is becoming clear that booster shots may be needed for vaccines to fade, workplace reopening will be delayed and border closures will remain to exist.
Data from the past week showed a global weakening as infections hit travel and spending and exacerbated supply bottlenecks dampening manufacturing and trade. Rising gas prices also pose a threat.
In the US, hiring slowed sharply to the smallest seven-month increase in August, and airport check-ins, hotel bookings and restaurant reservations are all showing weaker demand. The key indicator of German business sentiment deteriorated and the Chinese services sector collapsed in August. A global benchmark for production collapsed.
According to Goldman Sachs Group Inc. activity indicators have missed expectations in major economies, while Citigroup Inc. warned that the recovery could moderate with widening divergence across sectors and regions.
“The spread of the delta variant is slowing the reopening process and has resulted in us slowing growth globally,” said Robin Brooks, chief economist at the Institute of International Finance in Washington, referring to his revised 5.7% forecast for this. year. 6.2%.
That stumbling could complicate central banks’ plans to pull out of crisis support by slowing asset purchases or raising interest rates. Federal Reserve Chair Jerome Powell warned on Aug. 28 of continued slack in the labor market as the pandemic continues, while Australia’s central bank is expected to reconsider this week whether its winding-down plans should be delayed amid a worsening outbreak.
What Bloomberg Economics Says…
“From a decline in Chinese services to a dip in US job growth, the delta variant is putting a dent in the global recovery. Looking ahead, even if China exits its latest outbreak, a broader crackdown on entrepreneurs – part of the “Common Prosperity Agenda – Adds Uncertainty to the Global Outlook.”
— Tom Orlik, Chief Economist
In Germany, Bundesbank president Jens Weidmann also mentioned the risk of a setback in a September 1 speech, while the Chinese State Council, the equivalent of a government cabinet, has ordered additional support for small businesses.
The severity of the delay from here on will depend largely on science.
High vaccination coverage economies allow policymakers to oppose another round of closures and instead opt for targeted measures, including vaccination requirements for public places like restaurants. Advances in vaccinations mean that “in all likelihood the economic impact will not be as severe” as during previous waves, Weidmann said.
According to David Mackie, economist at JPMorgan Chase & Co. in London, governments will also have more room for maneuver if vaccines remain resistant to morbidity, mortality and serious health outcomes.
However, emerging economies usually struggle to gain the same access to jabs as their developed counterparts. The vaccination rate is 58% in the 39 economies defined as “advanced” by the International Monetary Fund, compared to just 31% for the rest of the world – and that relies heavily on China’s massive vaccine roll-out.
Manufacturing and tourism-led economies like Vietnam and Thailand have been forced to close factories and turn away visitors. Southeast Asia is suffering from one of the world’s worst Covid-19 outbreaks and is in the bottom five places on Bloomberg’s latest Covid Resilience Ranking.
Asia’s manufacturing and shipping issues are causing complex and interconnected supply shortages worldwide. According to Janet Henry, chief economist at HSBC Holdings Plc in London, those disruptions to production could ultimately affect consumer spending and push commodity prices up.
“In the US and European countries, where vaccination rates are generally higher and reopening continues, growth is more resilient,” Henry said. “But these economies could be impacted by delta-related disruptions elsewhere, for example factory closures in Malaysia.”
According to Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, that two-speed recovery between emerging and advanced economies will only deepen.
“The gap between emerging and developed economies will only widen,” she said.
(Except for the headline, this story has not been edited by NewsMadura staff and has been published from a syndicated feed.)