Oliver Mangan: Race against time to escape economic crisis
Urgency is of the upmost importance in rolling out what are deemed safe and highly effective vaccines.
Growth forecasts for the global economy have being revised upwards over the spring.
The OECD now sees the world economy expanding by 5.6% this year, compared to 4.2% in its previous update. The IMF is even more optimistic, upping its growth forecasts to 6% for this year and 4.4% in 2022.
There are three main factors behind the recent upgrades.
First, the arrival and roll-out of multiple vaccines that can reduce both the frequency and severity of infections.
Second, better adaptation to what the IMF calls “pandemic life” which has seen a stronger than expected global rebound since last summer despite continuing subdued mobility and the re-imposition of restrictions on activity.
Third, additional budgetary supports have been announced in some major economies on top of the enormous fiscal response put in place last year and the ongoing very loose stance of monetary policy.
Both the OECD and IMF, though, have expressed concern at the divergences in the pace of recovery across countries, linked to stark differences in the pace of vaccine rollout, the extent of policy support, and structural factors such as a reliance on tourism or commodities.
Notably amongst advanced economies, the US is expected to surpass its pre-Covid GDP level in this quarter, compared to 2022 for most other countries.
Furthermore, the income lost in this recession has been far greater in developing economies, whose governments have much less scope to provide budgetary supports.
Both the OECD and IMF now view the risks to their forecasts as better balanced compared to previously, when they were tilted to the downside. To some extent, it boils down to a race between the virus and vaccines. The principal risk they identify surrounds the effectiveness of vaccines against new strains of the virus.
Thus, the OECD and IMF argue strongly that the top priority is to ensure all resources necessary are used to produce and fully deploy vaccinations as quickly as possible throughout the world. Delays in inoculating all parts of the world may result in new vaccine-resistant virus mutations.
On the upside; an intensified, globally coordinated vaccination effort could end the pandemic more quickly and limit economic scarring.
Overall, then, it is a race against time to bring the virus under control and escape the public health and economic crisis, with both the pace and breath of vaccinations playing a crucial role.
- Oliver Mangan is chief economist at AIB
