World’s Growth Cools and the Rich-Poor Divide Widens

The International Monetary Fund says the persistence of the coronavirus and global supply chain crisis weighs on economies.

The global economic recovery loses steam
The resurgence of the coronavirus and supply chain chokeholds threaten to hold back the momentum of the global economic recovery, a report from the International Monetary Fund warns. Though overall growth is forecast at 5.9 percent this year, the expansion reflects a vast divergence in the fortunes of rich and poor countries.
Uneven access to vaccines and health care is at the heart of the economic disparities. In low-income countries, a staggering 96 percent of people are still unvaccinated, while poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially among women, reversing many of the gains they made in recent years.
For advanced economies like the U.S. and Europe, the outlook has also darkened amid supply shortages, weakening consumption and a lack of workers. Fears of rising inflation — even if likely to be temporary — are growing, as prices climb for food, medicine and oil, as well as automobiles.
Quotable: “Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhereuntil it is over everywhere,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report.

By guest authors Patricia Cohen and Alan Rappeport, both from the New York Times

As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.

The overall growth rate will remain near 6 % this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.

Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.

Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96 percent of people in low-income countries are still unvaccinated.

“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report.

The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the work force.

In the United States, weakening consumption and large declines in inventory caused the I.M.F. to pare back its growth projections to 6 percent from the 7 percent estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.

Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.

“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Ms. Gopinath said. The I.M.F. lowered its 2021 global growth forecast to 5.9 percent, down from the 6 percent projected in July. For 2022, the estimate is 4.9 %.

The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.

For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Mr. Daco said, raising costs of raw materials that reverberate through the production process.

The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A Covid outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken won’t have shoes and sweaters to sell.

The I.M.F. warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by USD 5.3 trillion over the next five years.

www.nytimes.com