Dubai: The rise of new COVID-19 infections in Europe and the US is stubbornly dampening global economic forecasts, economists warn, while signaling the growing need for more fiscal momentum.
“The renewed increase in COVID-19 infection rates threatens growth and increases the urgency of additional stimulus,” warn Nariman Behravesh and Sara Johnson, global economists at IHS Markit, adding that global economic prospects have deteriorated in the short term. IHS Markit examines global economic activities.
“The dreaded second and third COVID-19 waves are here, and any illusion that the world can easily control the spread of the virus has largely disappeared,” the economists noted. “The revival is being felt in Europe and parts of the US, where pandemic fatigue has become a huge challenge for governments.”
IMF paints a bleak picture
Important economists and multilateral organizations such as the International Monetary Fund (IMF) are calling for more fiscal stimulus. “The need to strengthen struggling economies has undermined the concept of austerity,” IHS Markit economists added.
“Unfortunately, institutional and political constraints in Europe, the possibility of a divided government in the USA and the constraints on further expansion of the budget in the emerging world, mean the hope of great fiscal stimulus.
The IMF estimated earlier this week that governments and central banks are currently looking to spend $ 19.5 billion to boost the world economy, which has been hit by the effects of the pandemic.
The IMF said that governments had announced nearly $ 12 trillion in stimulus measures since September and that central banks around the world had spent $ 7.5 billion together to mitigate the impact of the pandemic on their economies.
Unequal economic downturn
Despite all these measures, some countries need even more help to recover from the crisis, but they may not get it, warns the IMF.
“Even countries with early successes in combating the disease (such as Germany) have had to impose restrictions on restaurants, pubs and other gathering places,” said IHS Markit economists. ‘Some countries (Czech Republic, France, Ireland, Israel and the United Kingdom) have reintroduced partial national exclusions.
“Successful preliminary test results for messenger RNA (mRNA) vaccination are encouraging, but the distribution of vaccines is unlikely by mid-2021.”
Economies still struggling
As the world economy was currently in its deepest recession since World War II, there was earlier reason for hope as countries reopened worldwide after the worst pandemic in March, with the economic impasse ending in record time. But economists later felt that any setback would be short-lived and dragging on.
The IMF Annual Report 2020 notes that despite the unprecedented amounts in tax cuts, wage support, small business loans and cash payments, the world economy is still struggling, adding that “the world economy is worse off than it was during the Great Depression.”
“Uncertainty remains around the outlook, along with long-term forces shaping and influencing countries’ response to the virus and recovery.”
Even before the recent increase in infections, IHS Markit economists predicted that growth would disappear in the last months of 2020 and early 2021. “The blur is turning into something worse,” they warn now.
The view of the British, American economic recovery
Economists currently believe that in the case of the Eurozone and the United Kingdom, real GDP will shrink in the fourth quarter of 2020, and the recovery in the first quarter of 2021 will be limited.
“Prospects are a little less dire for the U.S. economy,” economists said, adding that after the U.S. grew an expected 3.7 percent in the fourth quarter of 2020, the average growth in the four quarters of 2021 should be only 1.9 per cent.
‘The outlook is better in large parts of Asia, where infection rates have remained low. After a decline of 4.2 percent in 2020, global real GDP growth should reach 4.2 percent in 2021, 0.2 percentage points lower than last month’s forecast, ‘they continue.
Central banks to get through
The IHS Markit economists reiterate that central banks will continue to bear the brunt of stimulus, and despite repeated contradictory statements, monetary authorities do not touch ‘ammunition’, as clearly shown during the global financial crisis of 2008–09 and the current pandemic is. .
Source: Gulf News