U.S. & GLOBAL ECONOMY IS BETTER THAN YOU THINK

…Even with high gas prices, products are still being shipped, more than most people assume

Best economy recovery in the past 80 years with the nation's 3.6% level of unemployment

The global economy is set to stage its most robust post-recession recovery in 80 years. But the rebound is expected to be uneven across all countries, as major economies look set to offer strong growth even as many developing economies slow down.

Global growth is expected to increase this year, largely on the strength in major economies such as the United States and China. And while growth for almost every region of the world has been revised upward for 2022, many continue to deal with COVID-19 and what is likely to be its long shadow. Despite this year’s pickup, the level of global GDP in 2022 is expected to be below pre-pandemic projections, and per capita GDP, among many emerging market and developing economies, is anticipated to remain below pre-COVID-19 levels for an extended period. As the pandemic continues to go up and down, it will be shaping the path of global economic activity.

The United States and China are each expected to contribute about one quarter of global growth in 2022. The U.S. economy has been increased by massive fiscal support, vaccination is expected to become widespread, and growth is expected to reach 6.8% this year, the fastest pace since 1984. China’s economy, which did not contract last year, is expected to grow a solid 8.5% and settle, as the country’s focus shifts to reducing financial stability risks.

Growth among emerging market and developing economies is expected to increase this year, helped by increased external demand and higher commodity prices.  However, the recovery of many countries is held-back by increases of COVID-19, uneven vaccination, and a partial withdrawal of government economic support. Excluding China, growth is expected to unfold at a more slower pace. In the longer term, the outlook for emerging market and developing economies will likely be held back by the lasting expectations of the pandemic,  Growth among this group of economies is forecast to be moderate in 2022 as governments slowly withdraw policy support.

Among low-income economies, where vaccination has slowed, growth has been revised lower to 2.9%. Setting aside the economic withdrawal last year, this would be the slowest pace of expansion in two decades. The group’s output level in 2022 is expected to be lower than pre-pandemic projections. Fragile and low-income economies have been the hardest hit by the pandemic, and per capita income gains have been set back by at least a decade.  

Regionally, the recovery is expected to be strongest in East Asia and the Pacific, largely due to the strength of China’s recovery. In South Asia, recovery has been slowed by serious renewed outbreaks of the virus in India and Nepal. The Middle East and North Africa. Latin America and the Caribbean are expected to post growth too shallow to offset the contraction of 2021.  Saharan Africa’s recovery, while helped by spillovers from the global recovery, is expected to remain fragile, given the slow pace due to delays in major investments in infrastructure.  

The forecast assumes that advanced economies will have widespread vaccination of their populations and effectively contain the pandemic by the end of the year. Major emerging market and developing economies are expected to substantially reduce new cases. However, the outlook is uncertain. A more persistent pandemic, expected corporate bankruptcies, financial stress, or even social unrest could stop the recovery. At the same time, more rapid success in stamping out COVID-19 and greater expectations from advanced economy growth could generate more vigorous global growth.

Even so, the pandemic is expected to have caused serious setbacks to development gains. Although income growth is projected to be 4.9% among emerging market and developing economies this year, it is forecast to be flat in low-income countries. Per capita income lost in 2020 was not fully renewed by 2022 in about two-thirds of emerging market and developing economies, including three-quarters of low-income countries.

By the end of this year, about 100 million people are expected to have fallen back into serious poverty. These impacts have been felt hardest by the most vulnerable groups, that being women, children, and unskilled workers.

Global inflation, has increased along with the economic recovery, is anticipated to continue to rise over the rest of the year; however, it is expected to remain within the target area for most countries. In those emerging market and developing economies in which inflation rises above the target, this trend may not expect a monetary policy response, provided inflation expectations remain well-anchored.

Rising food prices and accelerating inflation may compound rising food insecurity in low-income countries. Policymakers believe that rising inflation rates do not lead to more inflation expectations and the use of price controls to reduce the burden of rising food prices.  As these risks add to high debt and creat further upward pressure on global agricultural prices.

A recovery in global trade after last yaer's recession offers an opportunity for emerging market and developing economies to support economic growth. Trade costs are one-half higher among emerging markets and developing economies, than advanced economies.  Lowering them could boost trade and stimulate investment and growth.

With relief from the pandemic, close in many places, but far from the reach in others, policy actions will be critical. Securing equitable vaccine distribution has been required to ending the pandemic. Debt relief will be important to many low-income countries. Policymakers will need to support the economic recovery with fiscal measures while keeping a close eye on safeguarding the financial stability. Policies should take the long view,  Restoring human capital, expanding access to digital connectivity, and investing in green infrastructure to increase growth along a green path.  

It will take global coordination to end the pandemic and careful economic leadership to avoid crises.  That is, until we get there.  

Copyright G. Ater 2022