IN THE 1970s the fortunes of the world economy, in all its unfathomable complexity, seemed to revolve around one commodity: oil. Exported by a narrow clique of countries, this vital contribution was held hostage by fierce political forces. Today’s global economic outlook also hinges on another all-important input, vaccines, which are also tightly produced, delicately political and unevenly distributed. Widespread immunization is helping America thrive, pushing core inflation to its highest rate since 1992. But delays in purchasing, manufacturing and deploying vaccines have left much of the world vulnerable to the effects of the disease. new virus epidemics and economic setbacks.
On June 16, the US Federal Reserve raised its forecasts for growth, inflation and interest rates, noting the progress of the country’s vaccines. The Fed median official now expects two rate hikes in 2023. The change in tone was enough to raise bond yields both in America and in economies on the other side of the vaccine divide.
The global economy is expected to grow at a steady pace this year: 5.6%, according to the World Bank, which also updated its forecast this month. But this is a “story of two takeovers,” says Ayhan Kose of the bank. Rich countries, many of which vaccinated people pretty quickly, are enjoying, in Dickensian terms, a source of hope and so on. But where immunization has fallen behind, especially in poor countries, some economies seem to be going straight in the other direction.
The gap between jabs and jab-nots is visible even in a simple comparison of vaccination rates and growth forecasts (see graph). Among the major economies highlighted by the World Bank, the ten with the highest vaccination rates are expected to grow 5.5% on average this year. The ten with the weakest are expected to grow by just 2.5%. The gap is also visible in the revised forecasts. Thanks to America’s rate of inoculation (as well as the magnitude of its stimulus), its projected growth for 2021 has been revised up from 3.5% to 6.8% since the last publication of its forecasts by the World Bank in January. Emerging economies that vaccinated faster than their peers have also benefited from significant improvements.
On the other side of the divide, the picture is much more squared. In the 29 poorest economies in the world (including 23 countries in sub-Saharan Africa), only 0.3% of the population received even a single dose of the vaccine. The growth prospects for this group have deteriorated. Their handset GDP is expected to grow 2.9% this year (not 3.4% as expected six months ago). It would be their second worst performance in the past two decades. Their worst was last year.
Vaccination promotes growth in at least two ways. It allows countries to ease blockages or any other restriction on social interactions that still hamper the economy. And in places like New Zealand that have already lifted such measures, it reduces the risk of a future epidemic, making growth more resilient. Goldman Sachs, a bank, calculated an “effective foreclosure index” that combines a tally of policy measures with mobility data from cell phones. It shows that social unrest has returned in many countries with high vaccination rates. As the rate of inoculation accelerates, others will join them. Indeed, the countries most likely to outperform over the next few months, according to Goldman Sachs, are those that are simultaneously making rapid progress in obtaining immunity while still working under social restrictions. They have yet to feel the benefit of easing restrictions, but will soon.
In this type of country, current economic data is still depressed by social brakes which will diminish given the pace of vaccination. In other countries, however, such as Taiwan, the new epidemics of covid-19 have not yet fully manifested in key economic indicators, which remain strong. JPMorgan Chase’s “nowcast” model, which uses monthly data to predict where the economy is today, shows Taiwan growing at an annual rate of about 9% in the second quarter. But the bank believes Taiwan’s economy will actually have contracted during this period. In the eurozone, by contrast, JPMorgan expects vaccinations to have boosted growth this quarter to more than 7% year-on-year. However, the bank’s nowcast model predicts growth of less than 3%.
Given the size of the global vaccine deficit, it is worth asking how quickly it is being reduced. Japan, South Korea, Brazil, Turkey and Mexico will each receive at least one bullet in the arms of half of their population by August, Goldman estimates. South Africa and India will not reach this benchmark until December. In both of these countries, however, many people have already recovered from the virus, giving them some level of natural immunity. Deutsche Bank’s Michael Spencer believes India, for example, could reach a 70% immunity level in less than nine months, counting everyone who has either had a previous infection or a first injection of the vaccine.
Uneven recovery is better than nothing. But strong growth in some countries could create problems for other parts of the world. The US boom, for example, pushed its own consumer prices up 5% in May from a year earlier, and could also increase price pressure elsewhere, forcing central banks to respond.
Brazil, for example, has raised interest rates sharply this year. On June 11, Russia’s central bank also tightened for the third time since March. Its governor, Elvira Nabiullina, cited both vaccination rates and “extremely accommodating monetary and fiscal policies in large economies” as the reasons for the rise in Russian prices. She fears that higher inflation in Russia and elsewhere may prove to be more persistent than “perceived at first glance.”
Even temporary inflation could disrupt financial markets, causing investors to doubt the Fed’s commitment to easy money. This could increase the risk premium that emerging markets pay on their borrowings. “We’re not necessarily worried about inflation,” said Kose, whose team forecasts global inflation to rise from 2.5% last year to 3.9% in 2021. “But we are concerned about how these inflationary pressures may complicate policy making “in emerging markets. , especially those with large foreign currency debts.
Policymakers in these countries fear a repeat of the “taper tantrum” in 2013, when the Fed’s comments on reducing (or “tapering”) its asset purchases led to a sharp rise in US bond yields and a fall. painful liquidation of emerging markets. assets. At its June 15-16 meeting, the Fed began discussing a possible tapering, but the timing of such a move remains uncertain.
Global inflation this year will remain far from the double-digit rates recorded in the stagflationary 1970s. But just as the oil crisis of the day forced policymakers into difficult dilemmas, forcing them to raise interest rates in the face of economic weakness, this year’s vaccine shortage could create a similar unease for them. The price of uneven vaccination can be premature austerity and monetary tightening in some unprotected parts of the world. Countries that bite too late might need to hike too early. ■
A version of this article was posted online on June 13, 2021.
This article appeared in the Finance & economics section of the print edition under the title “Les jabs et les jab-nots”