The world economy is on course for its fastest growth in more than a half century this year, yet differences and deficiencies could hold it back from attaining its pre-Covid-19 heights any time soon.
The US is leading the charge into this week's semi-annual virtual meeting of the International Monetary Fund (IMF), pumping out trillions of dollars of budgetary stimulus and resuming its role as guardian of the global economy following President Joe Biden's defeat of "America First" president Donald Trump. Last Friday brought news of the biggest month for hiring since August.
China is doing its part too, building on its success in countering the coronavirus last year even as it starts to pull back on some of its economic aid.
Unlike in the aftermath of the 2008 financial crisis, however, the recovery looks lopsided, in part because the roll-out of vaccines and fiscal support differ across borders. Among the laggards are most emerging markets and the euro area, where France and Italy have extended curbs on activity to contain the virus.
"While the outlook has improved overall, prospects are diverging dangerously," IMF chief Kristalina Georgieva said last week. "Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and rising poverty. Too many countries are falling behind."
The result: It could take years for swathes of the world to join the United States and China in fully recovering from the pandemic. By 2024, world output will still be 3 per cent lower than was projected before the pandemic, with countries reliant on tourism and services suffering the most, according to the IMF.
The disparity is captured by Bloomberg Economics' new set of nowcasts which shows global growth of around 1.3 per cent quarter on quarter in the first three months of this year. But while the US is bouncing, Britain, France, Germany, Italy and Japan are contracting. In the emerging markets, Brazil, Russia and India are all being clearly outpaced by China.
For the year as a whole, Bloomberg Economics forecasts growth of 6.9 per cent, the quickest in records dating back to the 1960s. Behind the buoyant outlook: a shrinking virus threat, expanding US stimulus, and trillions of dollars in pent-up savings.
Much will depend on how fast countries can inoculate their populations, with the risk that the longer it takes, the greater the chance the virus remains a global threat, especially if new variants develop. Bloomberg's Vaccine Tracker shows that while the US has administered doses equivalent to almost a quarter of its people, the European Union has yet to hit 10 per cent, and rates in Mexico, Russia and Brazil are below 6 per cent. In Japan, the figure is less than 1 per cent.
"The lesson here is there is no trade-off between growth and containment," said Bank of Singapore's chief economist Mansoor Mohi-uddin.
Former Federal Reserve official Nathan Sheets said he expects the US to use this week's virtual meetings of the IMF and World Bank to argue that now is not the time for countries to pull back on assisting their economies.
It is an argument that will be mostly directed at Europe, particularly Germany, with its long history of fiscal stringency. The EU's €750 billion (S$1.19 trillion) joint recovery fund will not start until the second half of the year.
The US will have two things going for it in making its case, Mr Sheets said: a strengthening domestic economy and an internationally respected leader of its delegation in Treasury Secretary Janet Yellen, no stranger to IMF meetings from her time as Fed chief.
But the world's largest economy could find itself on the defensive when it comes to vaccine distribution after accumulating massive supplies for itself. "We will hear a hue and cry emerge during these meetings for more equal access to vaccinations," said Mr Sheets, who is now the head of global economic research at PGIM Fixed Income.
And while America's booming economy will undoubtedly act as a driver for the rest of the world by sucking in imports, there could also be some grumbling about the higher market borrowing costs that the rapid growth brings, especially from economies which are not as healthy.
"The Biden stimulus is a two-edged sword," said former IMF chief economist Maurice Obstfeld, who is a now senior fellow at the Peterson Institute for International Economics in Washington. Rising US long-term interest rates "tighten global financial conditions. That has implications for debt sustainability for countries that went deeper into debt to fight the pandemic", he said.
JPMorgan Chase chief economist Bruce Kasman said he has not seen such a wide gap in 20 to 25 years in the expected outperformance of the US and other developed countries when compared with the emerging markets. That is due in part to differences in distribution of the coronavirus vaccine. But it is also down to the economic policy choices that various countries are making.
Having mostly slashed interest rates and started asset-purchase programmes last year, central banks are now splitting, with some in emerging markets beginning to hike interest rates either because of accelerating inflation or to prevent capital from flowing out. Turkey, Russia and Brazil all raised borrowing costs last month, while the Fed and European Central Bank say they will not be doing so for a long time yet.
Mr Rob Subbaraman, head of global markets research at Nomura Holdings in Singapore, reckons Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa all risk running overly loose policies.
"With major developed market central banks experimenting on how hot they can run economies before inflation becomes a problem, emerging market central banks will need to be extra careful to not fall behind the curve, and will likely need to lead, rather than follow, their developed market counterparts in the next rate hiking cycle," said Mr Subbaraman.
BLOOMBERG
