World economy will grow strongly, with the risk of divergences

(Bloomberg) – The global economy is on track for its fastest growth in more than half a century this year, yet gaps and deficiencies could prevent it from reaching its pre-pandemic levels anytime soon. The United States leads the way. task at this week’s biannual virtual meeting of the International Monetary Fund, pumping trillions of dollars of budget stimulus and resuming its role as watchdog of the world economy after President Joe Biden ended Donald Trump’s “America First”. March hiring data was released on Friday, showing the highest number since August.

China is also doing its part, building on the success it had last year in countering the coronavirus, while beginning to withdraw some of its economic aid. However, unlike the aftermath of the 2008 financial crisis, the recovery appears uneven, in part because vaccine deployment and fiscal support differ across borders. Laggards include most emerging markets and the eurozone, where France and Italy extended restrictions on activity to contain the virus.

“While the outlook has generally improved, the outlook is dangerously diverging,” IMF Managing Director Kristalina Georgieva said last week. “Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and increasing poverty. Too many countries are being left behind ”.

The result: It could take years for regions of the world to join the US and China to fully recover from the pandemic. By 2024, global production will remain 3% lower than expected before the pandemic, with countries dependent on tourism and services being the hardest hit, according to the IMF.

The disparity is captured by the new set of predictions for the near future showing global growth of around 1.3% QoQ in the first three months of 2021. But as the US recovers, France, Germany, Italy, the Britain and Japan are contracting. In emerging markets, Brazil, Russia and India are clearly outperformed by China.

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For the full year, Bloomberg Economics forecasts 6.9% growth, the fastest on record dating back to the 1960s. Behind the optimistic outlook: a waning virus threat, expanding US stimulus .US. And trillions of dollars in accumulated savings.

Much will depend on how quickly countries can inoculate their populations, with the risk that the longer it takes, the greater the likelihood that the virus will remain an international threat, especially if new variants develop.

While the booming US economy will undoubtedly act as a catalyst for the rest of the world by absorbing imports, there could also be some complaints about the higher borrowing costs that rapid growth brings, especially from economies that JPMorgan Chase & Co. chief economist Bruce Kasman said he hasn’t seen such a wide gap in 20 to 25 years between the expected outperformance of the U.S. and other developed countries compared to the emerging markets. This is partly due to differences in the distribution of the vaccine. But it is also due to the economic policy decisions that several countries are taking: After having reduced, for the most part, interest rates and initiated asset purchase programs last year, central banks are splitting and some in the Emerging markets begin to raise interest rates, either due to accelerating inflation or to prevent capital from leaving. Turkey, Russia and Brazil increased borrowing costs last month, while the Fed and the European Central Bank say they won’t for long.

Rob Subbaraman, head of global markets research at Nomura Holdings Inc. in Singapore, acknowledges that Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa are at risk of overly flexible policies.

Original Note: World Economy Risks ‘Dangerously Diverging’ Even as Growth Booms

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