Shaken global economy looking for West to turn the tide

FPI / May 22, 2020

By John J. Metzler

After years of consistent economic expansion and growth throughout much of the world, the global economy is facing tectonic shocks from the COVID-19 pandemic.

For developed states such as the United States and Western Europe, the “unseen enemy” of the virus has shattered economic forecasts and international commerce; for developing countries, the after-shocks of this crisis can be even more lasting as they will fall victim to steep drops in  demand and investment.

The global economy is projected to contract sharply by -3.2 percent this year, according to the UN’s World Economic Situation mid-2020 report.  This sharp contraction, the greatest since the Great Depression of the 1930’s, follows a lackluster original forecast of 2.1 percent growth at the beginning of this year.

The report estimates that GDP growth in the developed economies will plunge to -5.0 percent in 2020.  A modest 3.4 percent recovery is expected next year.  Significantly, “world trade is forecast to contract by nearly 15 percent in 2020 amid sharply reduced global demand and disruptions in supply chains.”

These are stunning statistics and reflect the cruel reality that nearly 90 percent of the world remains on pandemic lockdown causing catastrophic job cuts and threatening a quick economic revival. There’s an ongoing debate between saving lives and saving jobs.

Dr. Elliott Harris, Assistant Secretary General for Economic Development warned that, “The pace and strength of the recovery from the crisis not only hinges on the effect of public health measures in slowing the spread of the virus, but also on the ability of countries to protect jobs and incomes.”

Moreover UN officials warn the increase in global economic inequality can lead to instability.

Due to the Wuhan virus pandemic, the United States has gone from having robust economic growth and historically low unemployment to negative growth and surging unemployment all in a space of a few months!  U.S. growth of 2.9 percent last year is except to fall to -4.8 percent this year but rebound to 3.9.  in 2021.

The European Union's growth of 1.8 percent last year will slip to -5.5 this year and only inch up to 2.8 percent in 2021.   Equally Japan whose growth in 2019 was a anemic 0.7 percent will fall to -4.2 percent but will then jump to 3.2 percent next year.

Looking at East and South Asia, which grew 5 percent on average last year, there’s still a prediction of some growth this year albeit 0.8 percent. China’s growth of 6.1 percent last year is expected to maintain 1.7 percent this year and then theoretically surge to 7.6 percent in 2021.

India who recorded an impressive 4.1 percent in 2019 is still expected to reach 1.2 percent this year and then climb to 5.5 percent in 2021.

Just a few years ago the so-called BRICS, the informal alliance of fast-growing developing world economies, were the talk of the town.  Brazil, Russia, India, China, and South Africa were lauded as a new global engine.  Now with the exception of China  (if you can believe the numbers) and India, these economies have cooled considerably.

Brazil has gone from 1.1 percent growth last year to this year expected -5.2 percent. Russia goes from an anemic 1.3 percent last year to a -4.3 percent this year.  The once vibrant Southern African region has gone from flat growth in 2019 to -3.5 percent this year.

A particularly troubling trend concerns Latin American and African growth rates.  The UN report states that, “The pandemic will likely cause an estimated 34 million people to fall below the extreme poverty line in 2020, with 56% of this increase occurring in African countries.” This underscores a troubling trend where African growth rates reached 3 percent last year to fall -1.6 percent this year but rebound to 3.4 percent next year.

South America underscores some serious shortfalls; growth last year was -0.5 percent, this year shall drop to -5.5 percent and only rise 2.7 percent next year. Such numbers reflect economic free fall in Venezuela, and serious economic contractions in Argentina, Brazil and Chile.

Closer to home, Mexico expects a negative growth of -5.4 this year. Poor growth prospects for Mexico and Central America can cause a surge in migration towards the USA as the American economy is expected to robustly recover next year.

Without a strong U.S., European Union, and Japanese economic recovery along with vibrant free trade, global growth will stagnate, and poverty will increase. Trade, investments and free markets will then begin to turn the tide lifting all boats.

Free Press International