MIL-OSI Economics: Covid Inflation Hitting Hard Around the World

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Source: Breitling Energy

Headline: Covid Inflation Hitting Hard Around the World

Read Time:3 Minute, 27 Second

The covid-19 pandemic dramatically changed the spending patterns of UK consumers, as people avoided movie theaters, bars, and restaurants.

Should the world fear inflation again? The worldwide supply of money has been rising fast. With the economic recovery and upsurge likely to follow the vaccine rollout, most people are worried that all this money will lead to high prices.

Economic recovery such as coronavirus vaccines, won’t be evenly distributed across the globe over the next few years. Despite the immense policy support offered by central banks and governments, the economic risks are still profound, and not only to emerging nations experiencing an alarming rise in poverty and frontier economies facing huge debt problems. With the covid-19 far from tamed, uneven policy normalization, imminent global debt problems, and populism rife, the situation is still precarious.

This is not to downplay the good news and trends made over the past year. Effective covid-19 vaccines have ultimately become available to nearly everyone, something that many experts didn’t anticipate. The massive fiscal and monetary response built a bridge towards the highly expected end of the pandemic. The good news is that the public has over the past few months learned how to live with the virus.

But even though growth outcomes across the globe have been much better than many experts in the early days of the covid-19 pandemic, the existing recession remains disastrous. The International monetary fund predicts that Japan and the US won’t return to the pre-covid-19 output levels until later this year. The UK and the Eurozone in general, again declining, can’t reach the point they were before until 2022.

However, the Chinese economy seems to be in a league of its own, and it’s projected to be about 10% larger by the end of this year than it was back in 2019. However, by the end of this spectrum, many emerging markets and developing economies might take many years to return to the pre-covid-19 projections. The World Bank also predicts that the pandemic would push about 150 million extra people into extreme poverty by end of 2021 with food security being a real threat.

The different performance estimations have a lot to do with the vaccine rollout timetable. The vaccine is expected to be available in the highly advanced economies and some developing markets by end of 21021, but people in emerging markets will most likely have to wait until 2022.

Another important factor to consider is the staggering difference in the macroeconomic support between poor and rich countries. In the developed economies, tax cuts and additional government spending during the covid-19 pandemic have averaged about 13% of GDP with guarantees and loans amounting to 12% of the GDP. Contrary, tax cuts and government spending increases have averaged around 4% of the GDP and guarantees and loans another 3%. For the low-income nations, the comparative numbers are about 4% of the GDP in fiscal support and nearly nothing in guarantees.

Before the 2008 financial disaster, developing economies had a strong balance sheet as compared with the first world countries. But the countries entered the crisis largely burdened with more public and private debt and are for that reason more vulnerable. Most of them would in lots of trouble but for almost zero interest rates in the advanced economies. Nevertheless, there has been a growing rash of several sovereign defaults including Lebanon, Ecuador, and Argentina.

Inflation may be low for now, but increased demand might push it higher, leading the Federal Reserve to somewhat raise rates sooner than it had planned.

References

Inflation is higher than the numbers say. (2021, May 3). The New York Times – Breaking News, US News, World News and Videos. https://www.nytimes.com/2020/09/02/business/inflation-worse-pandemic-coronavirus.html

Levinson-King, R. (2021, May 15). Covid economy: What economists got right (and wrong). BBC News. https://www.bbc.com/news/world-us-canada-56938750

Riley, C. (2021, June 3). Global inflation hasn’t been this high since 2008. CNN. https://edition.cnn.com/2021/06/02/economy/inflation-oecd/index.html

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MIL OSI Economics