A century of data shows markets that are far from impervious to tax hikes

Bloomberg

Global economic risks “dangerously diverging”, even when growth is booming

(Bloomberg) – The global economy is on track for its fastest growth in more than half a century this year, but disparities and flaws could keep it from reaching its pre-pandemic high anytime soon. The US leads the indictment at the International Monetary Fund’s biannual virtual meeting earlier this week, which pumped out trillions of dollars in fiscal stimulus and resumed its role as custodian of the global economy after President Joe Biden’s defeat by “America First” President Donald Trump were. Friday brought the news of the biggest month for recruitment since August. China is also doing its part and building on its success in fighting the coronavirus last year, even if it starts withdrawing some of its economic aid 2008 financial crisis, the recovery looks lopsided, also with the introduction of vaccines and fiscal support across borders are different. The laggards include most of the emerging markets and the euro area, where France and Italy have stepped up activity to contain the virus. “Although the outlook has improved overall, the outlook is dangerously divergent,” said IMF chief executive Kristalina Georgieva last week. “Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and increasing poverty. Too many countries are falling behind. “The result: it could take years for parts of the world, along with the US and China, to fully recover from the pandemic. By 2024, world production will still be 3% lower than predicted before the pandemic, with countries that rely on tourism and services suffering the most, according to the IMF. Inequality is captured by Bloomberg Economics’ new nowcasts, which show global growth of around 1.3% quarter over quarter in the first three months of 2021. While the US is recovering, France, Germany, Italy, the UK and Japan are shrinking. In the emerging markets, Brazil, Russia and India are well ahead of China. For the full year, Bloomberg Economics is forecasting growth of 6.9%, the fastest since the 1960s. Behind the positive outlook: a shrinking virus threat, growing US incentives, and trillions in pent-up savings. Much depends on how quickly countries can vaccinate their populations at the risk that the longer the virus lasts, the greater the likelihood that it will remain an international threat, especially as new variants develop. Bloomberg’s Vaccine Tracker shows that while the US has given doses equivalent to nearly a quarter of its population, the US has not yet hit 10%, while rates in Mexico, Russia and Brazil are below 6%. In Japan the figure is below 1%. “The lesson here is that there is no trade-off between growth and containment,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd. Former Federal Reserve official Nathan Sheets said he expects the US to use this week’s virtual IMF and World Bank meetings to argue that now is not the time for countries to pull back to to support their economies. This is an argument that will be directed mainly against Europe, especially Germany, with its long history of tax stringency. The EU’s joint recovery fund of 750 billion euros (885 billion US dollars) will not be launched until the second half of the year. The US will have two reasons for this, Sheets said: a strengthening of the domestic economy and an internationally respected Treasury delegation, Janet Yellen, has been no stranger to IMF meetings since her time as Fed chair. The world’s largest economy, however, could be on the defensive when it comes to vaccine distribution after it has had massive supplies. “We will hear a cry and a cry for equal access to vaccination at these meetings,” said Sheets, who is now director of global economic research at PGIM Fixed Income. And while America’s booming economy will undoubtedly act as a driver of vaccination for the rest of the world, sucking up imports could also murmur murmurs about the higher market borrowing costs that the rapid growth brings, especially for economies that don’t are so healthy. “The Biden incentive is a double-edged sword,” said the former IMF chief economist Maury Obstfeld, who is now a senior fellow at the Peterson Institute for International Economics in Washington. Rising long-term US interest rates “are exacerbating global financial conditions. This has implications for debt sustainability for countries that have taken on more debt to fight the pandemic. Bruce Kasman, chief economist at JPMorgan Chase & Co., said he hasn’t seen such a large gap in expected outperformance of the US and other developed economies versus emerging markets in 20 to 25 years. This is partly due to differences in the distribution of the vaccine. But it is also down to the economic policy decisions that different countries make. Most notably, after central banks cut interest rates and launched asset-buying programs last year, some in emerging markets are splitting up to raise interest rates either to accelerate inflation or to prevent capital from flowing. Turkey, Russia, and Brazil all increased borrowing costs last month, while the Fed and European Central Bank say they are a long way from doing so. Rob Subbaraman, Head of Global Market Research at Nomura Holdings Inc. in Singapore, believes Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa all run the risk of looser policies. “As the central banks of the major developed countries experiment with how hot they can run the economies before inflation becomes a problem, the emerging markets central banks will have to be extra careful not to fall behind the curve and will likely need theirs in the next rate hike cycle Leading colleagues from the industrialized countries instead of following them, ”summarized Subbaraman. In an April 1 video for customers, Kasman summarized the global economic outlook as follows: “Booming conditions with fairly large variances.” (Vaccine number updates for Japan.) For more articles like this, visit bloomberg.com. Sign up now to keep up with the Mos t trusted business news source. © 2021 Bloomberg L.P.