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Global growth is hanging by an uneven thread- all you need to know

What is Global growth?

Experts say that the global economy is booming at a pace faster than seen since 2006, and we’re baffled by it. The vibrant environment that gives us a new estimation every day has us standing on our toes to assess what is going to happen next, and how can it not. Listed companies are hinting higher than ever profits, oil prices are soaring to the sky and labour markets, well, they are painting a completely different picture.

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However, between these uncertain possibilities and affirming expectations, one thing we can say for certain is that the growing global economy is eyeing at is going to be a rather uneven one. This unevenness is present within the prospects of countries, populations and sections. Let’s dive deep into this prospect to understand this uneven growth characteristic. The first distinctive factor is the vaccination drive. If at the time we were talking about rapid growth, you were thinking about the slumped Indian economy, that’s exactly where the difference lies.

The global growth prospects are primarily going to be divided into two segments, fast-paced growth for those countries that have had a successful vaccination rate to ensure a permanent opening up of the economy, and a smoother supply cycle. The current inflation trend around the globe has been evidence of this vaccination lag around the globe only. It has been time and again iterated that global growth, or specifically the growth of a country, is contingent on the pace of vaccination drive.

Lockdowns have led to a global loss of trillions of dollars, and if the uneven vaccination trend continues, with some countries surpassing others in the percentage of population jabbed, the loss would only accumulate further. A case in point, the prospective lockdown in India as the threat of the third wave advances further.

A report published by the World Health Organisation paid considerable attention to the fact that the expenditure incurred by rich economies in ensuring significant vaccination rate in the emerging economies would not only be covered but also earn significant profits eventually, a major proportion of which would go to the rich economies’ exchequer. This means that for growth to happen sustainably and evenly, the world economies have to integrate and come together to grow at a similar pace, if not equal. The second phenomenon contributing to this uneven global recovery prospects is the gap between demand and supply.

Consider for example the heightened demand for electronic items and cars in America but the ultimate supply shortage of electronic chips. Further aggravating this fact is the risen shipping costs from posts, extending to as much as four times the pre-pandemic level. While there’s still a long time for them to go back to normal, the increase in expectation of inflation prospects could lead to a stretched inflationary valve.

The translation of rising house prices into increased rental costs could also aggravate the behavioural notion of unaffordable housing. Adding to this unusual lot is the behavioural up hinge being witnessed in the labour market right now, with some countries struggling to sustain enough jobs to accommodate the rising joblessness, while some having a hard time getting people to work.

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I believe you already would have guessed the third one, especially because it’s hanging on our thread, exactly after every crisis. Yes, the tapering of quantitative easing undertaken during the crisis. Central Banks of rich economies have over the period acquired assets worth USD 10 trillion and it’s time to slow the pace down. Not to bring back the depressing memories of 2013’s exclusively inefficient tapering, this time around has a tremendous effect on the global economy. We the emerging economies won’t be able to take it this time.

China, which never fell below the pre-pandemic level, thanks to the industrial and research-led growth, has slowed its pace of bond-buying, ultimately leading to a slowing of growth in the country. While the country was already in a rather stable position, the numbers did not have as much of an effect as would be seen if the timing and pace of tapering in other economies are inadequate.

Along with that, the hefty stimulus packages released by rich economies are almost timed to burnout now, meaning that the stimulus-led growth being witnessed in the economies is going to slow down a little. This stimulus was inclusive of the unemployment insurance, loan moratoriums, direct transfers, which, however, would be expiring soon now that things are going back to normal. The financial stability report released by RBI revealed that even though non-performing assets and bankruptcies have stayed on the low as yet. Once the credit aids and emergency reforms are taken back, the true number would be revealed only then.

This is both scary and approaching, primarily because this would have a long term effect that countries may not be prepared for as yet. So, catching up with economic growth is what the world is looking up at the moment since the problems vary distinctly between different countries. While the rich economies like America and Australia are struggling with a behavioural change in labour markets, emerging economies are struggling to contain the virus and vaccinate their large populations. The developing economies are struggling with lack of enough resources needed to vaccinate their people and deploy essential resources to treat the virus.

imf boosts 2021 global growth forecast | pymnts.com

Along with that, the eventual tapering of quantitative easing by the Federal bank that would take place through a surge in interest rates would further lead to a financial instability. This problem in emerging economies, primarily because their currencies are going to face downward pressure as people put money in American markets. It’s going to be a tough fight for the emerging economies, especially in the light of slow inoculation and a prospective delayed vaccination.

Nonetheless, the prose explicitly states how important it is to address the uneven global growth that’s heading towards us. Even though there are no significant solutions that could miraculously make all of this go away, we have clarity on what the action steps should be directed towards. The world is hanging by this thread of uneven global growth, and as long as the thread keeps hanging, the world would figure it out.

Edited by Aishwarya Ingle

Simerleen Kaur

Talk to me about economics, trade, and all things India.

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