Surge of Covid-19 Delta variant means it’s as good as it gets for global growth
Instead of entering the final months of 2021 with the certainty that the acute phase of the pandemic is over, it is becoming clear that booster injections may be required for the fading of vaccines, reopening of workplaces will be delayed, and border closures will remain.
Data last week captured a global weakening as infections hit travel and spending and deepen supply bottlenecks that hold back manufacturing and trade. Soaring gas prices also appear to be a threat.
In the United States, hiring slowed sharply to its lowest increase in seven months in August, and airport check-ins, hotel reservations and restaurant reservations are all showing lower demand. The key indicator of the business climate in Germany deteriorated and the Chinese service sector collapsed in August. A global measure of manufacturing has collapsed.
Activity gauges missed expectations in major economies, according to Goldman Sachs Group Inc., while Citigroup Inc. warned that the recovery could moderate with growing divergence between sectors and regions.
“The spread of the delta variant is slowing the reopening process and has caused us to reduce growth globally,” said Robin Brooks, chief economist at the Institute of International Finance in Washington, referring to his forecast revised by 5.7% for this year, from 6.2%.
This stumble could complicate the central bank’s plans to withdraw from its support for the crisis by slowing asset purchases or raising interest rates. On August 28, Federal Reserve Chairman Jerome Powell warned of the continuing slowdown in the job market as the pandemic continues.
What Bloomberg Economics Says …
“From a drop in Chinese services to a drop in job gains in the United States, the delta variant is putting the brakes on the global recovery. Looking ahead, even as China emerges from its latest epidemic, a growing crackdown on entrepreneurs – part of President Xi’s “common prosperity” agenda – adds uncertainty to the global outlook. “
– Tom Orlik, Chief Economist
In Germany, Jens Weidmann, president of the Bundesbank, also raised the risk of setback in a speech on September 1, while the Chinese State Council, the equivalent of a government cabinet, ordered additional support for small companies.
The severity of the slowdown from here will largely depend on the science.
Economies with high vaccination rates allow policymakers to resist another round of closures, opting instead for targeted measures that include vaccination requirements for public places such as restaurants. Advances in vaccination mean that “in all likelihood the economic impact will not be as severe” as in previous waves, Weidmann said.
Governments will also have more leeway if vaccines continue to resist severe morbidity, mortality and health problems, according to David Mackie, an economist at JPMorgan Chase & Co. in London.
However, most emerging economies struggle to gain the same access to jabs as their developed peers. The immunization rate is 58% in the 39 economies defined as “advanced” by the International Monetary Fund, compared to just 31% for the rest of the world – and this relies heavily on the massive deployment of vaccines in China.
Manufacturing and tourism economies like Vietnam and Thailand have been forced to close factories and turn away visitors. Southeast Asia is suffering from one of the worst Covid-19 epidemics in the world, occupying the bottom five spots in Bloomberg’s latest Covid resilience ranking.
Problems in Asia in manufacturing and shipping are causing complex and interrelated supply shortages globally. These production disruptions can end up weighing down consumer spending and pushing up goods prices, according to Janet Henry, chief global economist at HSBC Holdings Plc in London.
“In the United States and in European countries, where vaccination rates are generally higher and reopening is continuing, growth is more resilient,” Henry said. “But those economies could be affected by delta-related disruptions elsewhere, for example, plant closures in Malaysia. . ”
This two-speed recovery between developing and advanced economies will only deepen, according to Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis.
“The divergence between emerging and developed economies is actually going to worsen,” she said.
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