Coronavirus and global recovery: the danger of whipping the economy


Most areas of Australia are back in pandemic lockdown. Opening of the Tokyo Olympics There was a state of emergency on Friday. The Netherlands had to re-limit cafes, bars and nightlife. The new travel warning dampens hopes for a revival in Spain’s tourism industry. Italians will soon have to show a health pass if they want to watch a movie or swim. Previously, French Prime Minister Mario Draghi followed the example of France to take measures to encourage people to get vaccinated. vaccine.

Unpopular restrictions have caused new fears in investors’ hearts: the rapid spread of the Delta variant of the coronavirus may lead to Global recovery stagnated.

Just 10 days ago, the market was still concerned about risks Overheated economy Triggering a surge in inflation-this puts pressure on policymakers to consider exiting stimulus measures during the pandemic early.This week started with a sharp sell-off in global stock markets Worries about the spread of the delta grow Variants. By mid-week, stock prices had rebounded-but US Treasury yields were still at the lowest level, indicating that doubts about the strength of the global recovery were spreading.

The transition is so fast that anyone who has followed global market volatility in the past two weeks could be flogged.

“With the emergence of the Delta variant, the narrative seems to have changed from’Look at how inflation rises!’.’Look at how growth slows down!’,” Barclays analyst Ajay Rajadhyaksha wrote. At the same time, Alan Ruskin, chief international strategist at Deutsche Bank, said that this incident showed the elasticity of investors’ demand for risky assets—but it also paid the price for the previous “violent views of simultaneous openness in the world”. .

Christine Lagarde, President of the European Central Bank, said the central bank will be more tolerant of inflation before raising interest rates © Sanziana Perju/EPA

The surge in coronavirus cases associated with more contagious strains of the virus has brought public health issues back into focus, just as the pandemic appears to be coming to an end in some countries-governments around the world are forced to suspend or reverse reopening plans .

“We are paying more and more attention to this kind of risk,” said Gregory Daco, chief economist at Oxford Economics Consulting. He warned that this kind of risk could lead to an uneven global recovery. “Some economies may Will regress into an environment of stricter social restrictions and social distancing measures”.

This anxiety is reflected in Christina LagardeOn Thursday, the President of the European Central Bank. She said that the Delta variant is “a growing source of uncertainty” because she made a new commitment from the central bank to be more tolerant of inflation before raising interest rates.

The UK has shown that even if the vaccination rate is high, and Political decisions to tolerate higher infection ratesOnce the Delta variant dominates, there is no easy way to avoid economic disruption.Although the social distancing regulations ended on Monday, hundreds of thousands of workers had to Stay at home and self-isolate After contact with people who tested positive-let the government scramble to avoid public service shutdowns and empty supermarket shelves.

However, although the Delta variable poses an increasing risk to the global outlook, policymakers and economists believe that its impact is more likely to inhibit rather than destroy the recovery of major economies, in which vaccination programs Weakened the link between infection and hospitalization.

Federal Reserve Chairman Jay Powell
Last week Fed Chairman Jay Powell asked several questions about inflation, as concerns about price increases still dominate in the United States © Charlie Bibby/FT

Jennifer McKeown of Capital Economics, a consulting firm, said there are some signs that people are becoming more cautious about going out in the UK, and the upward trend in shopping, leisure and work travel-encouraged by the gradual lifting of restrictions- As people come to stagnate, try to avoid being forced to self-isolate at the beginning of the holiday.

The investigation evidence also shows that shortages of staff and materials are beginning to affect business activities. But even in the UK, consumers are still spending, and companies are still scrambling to hire.

In the Eurozone, business activity has grown Fastest in 21 years In July, because many countries/regions continue to remove Covid-19 restrictions. The spread of new cases has hardly weakened consumer confidence.

Lagarde said that business surveys and hard data confirmed the European Central Bank’s June forecast, which assumes that some lockdown measures will last until the end of the year. “The Eurozone recovery is on track,” she said Wrote on Twitter, “But we have not yet come out of the crisis.”

U.S. inflation focus

In the United States, concerns about overheating and excessive inflation still dominate. In a two-day congressional hearing last week, Federal Reserve Chairman Jay Powell answered questions raised by lawmakers regarding central bank management and price rise assessments, not the impact of the Delta variable on the economy.

A lady wearing a mask walks on Sydney's quiet Circular Quay
Passersby walking along Sydney’s Circular Quay. Australian policymakers are trying to catch up with their vaccination campaign to prevent the Delta variant from surpassing them © AFP via Getty Images

The United States has enough buffers to absorb the new blows related to the coronavirus without falling back into recession.Fed officials predicted GDP growth in June At a rate of 7% This year, by the end of 2021, the unemployment rate dropped to 4.5% after approaching 15% at the peak of the pandemic.

Harvard University professor and former economic adviser to Barack Obama, Jason Furman, said that while it is correct to be nervous about the Delta variable, it should not change the macroeconomic trajectory. He believes that this is because those who are at the highest risk of infection in the United States—that is, those who choose not to be vaccinated—are also the least likely to change their behavior. And the states most in need of new social distancing rules “are the least vaccinated states that are least likely to implement these rules.”

However, even in the context of the booming US economy where wage pressures are increasingly evident, the rise of Delta Air Lines may make Fed rate makers more cautious about exiting stimulus measures early.

If the coronavirus situation worsens in the next few months, it will cause a great dilemma for US policymakers, as they have been turning to cancel fiscal and monetary stimulus measures instead of retaining or even strengthening it.

Some Fed officials warned that the central bank needs to adapt to the danger of economic setbacks caused by the new coronavirus outbreak. Mary Daly, President of the Federal Reserve Bank of San Francisco, said: “I think one of the biggest risks to global growth in the future is that we declare our victory over Covid too early.” Tell Financial Times in early July.

But Daktronics said: “The demand for a strong fiscal buffer or a strong monetary policy buffer is much smaller than a year ago. Therefore, this raises the question that, in the absence of financial and monetary support, the U.S. economy’s How flexible is it.”

A shopper walks past a sign that the product is temporarily out of stock
A supermarket in south London. Thousands of workers in the UK have to stay at home and isolate themselves, and the government scrambles to avoid public service shutdowns and empty supermarket shelves © Justin Tallis/AFP/Getty Images

Strong headwind

The rise of Delta variants also complicates policy debates in other countries. in England, Recent inflation intensity It surprised the Bank of England and led some interest rate makers to suggest that they might vote for an early end to quantitative easing. But others in the Monetary Policy Committee took a more nuanced view-including outside member Jonathan Haskel, who said this week that the current resumption of austerity policies is “not appropriate” because the economy faces two headwinds- — “Highly contagious Delta variants and tightening of fiscal stance”.

In the Eurozone, despite the rapid improvement in prospects, there is no immediate pressure to tighten policy. The European Central Bank’s forecast shows that by the end of 2023, inflation will remain below its more ambitious new target by 2%.

Compared with volatility in other places, the volatility of the Asian economic outlook is relatively small, even though the delta variable has established a firm foothold in some countries. The relatively slow start of vaccination, coupled with the smaller fiscal stimulus plan, means that there is no comparable moment for a booming recovery and overheating that seems possible.

For example, despite talking about the new era of global inflation, the Bank of Japan will not reach its 2% inflation target in the foreseeable future, so interest rates will not rise. In fact, with the increase in Covid-19 cases, the prospects for Japan’s economic recovery have been bleak, triggering a new round of discussions on fiscal stimulus measures.

A patient vaccinated against Johnson & Johnson in South Africa
A vaccination center in South Africa. The most vulnerable to the spread of delta variants are emerging economies in Asia and Africa © Alet Pretorius/AP

Economists are also far less optimistic about the prospects of other advanced economies with lagging vaccination activities — including Australia and New Zealand — and policymakers are now scrambling to catch up with the Delta variant.

China’s zero-tolerance policy for coronavirus infections has allowed its economic recovery to begin long before the United States, but now it has created a huge obstacle to full reopening-because every time a new case appears, the authorities will impose travel restrictions or shut down Community. Macquarie Group economist Larry Hu said: “This has an impact on consumption because it is actually difficult for China to keep virus cases at zero.”

Although growth in the second quarter exceeded most economists’ expectations, Beijing warned of the “unbalanced” recovery and the risks posed by Covid-19 variants. Analysts pointed to other factors slowing growth, including global chip shortages; rising domestic credit risk; decline in state-sponsored infrastructure investment and the US government’s ban on investment in Chinese technology.

However, by far, the most susceptible to delta transmission is Emerging economies in Asia and Africa, Where the death rate rose to the highest level since the pandemic began, and policymakers’ ability to implement new lockdowns or support growth is limited.

IMF chief economist Gita Gopinath (Gita Gopinath) last week highlighted the “dangerous divergence” between advanced economies and many emerging and developing countries, which have limited access to vaccines and rapidly dwindling financial support , And have already faced interest rates that have been forced to rise rapidly because of our conversations. Fed shrinks gradually.

A Wuhan woman wearing a mask
China’s zero-tolerance policy for Covid-19 infection has allowed its economic recovery to begin earlier than the United States, but it has now set up huge obstacles to full reopening. © Nicolas Asfouri/AFP/Getty Images

Catherine Mann, who has just stepped down as Citi’s chief economist and joined the Bank of England’s Monetary Policy Committee, believes that the different fates of advanced economies—and the more pronounced differences among emerging economies—make the global recovery far greater than What the overall forecast implies is much more fragile.

“Many people are currently looking at the 6% global growth rate and think,’This is great’,” she testified to the British Parliamentary Committee this week. But she added that this growth rate has slowed significantly next year — and is now increasingly dependent on the continued recovery in the United States and vulnerable to turmoil in emerging markets.

“In understanding the challenges and risks associated with Covid, we all think we are closer to the light at the end of the tunnel,” she told MPs. “But these additional mutations did produce some [global] Care. .. This does mean that growth in emerging markets has slowed. [And they] It is a large part of the global economy. “

Additional reporting by James Politi in Washington, Robin Harding in Tokyo, Sun Yu in Beijing and Edward White in Seoul





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