Uncertainties in the global economy
The rebound in the world economy after the end of the embargo could have its days counted. Its momentum is beginning to fade and there are many uncertainties about next winter. All countries are currently struggling to maintain economic activity, get back on track and contain a second wave of the virus. Some are doing better and others, such as Spain, are struggling more. Uncertainty is total and this is something lethal for economic forecasts.
"The economic rebound has already reached its peak. From now on it will start to decline," Joachim Fels, economic adviser to Pacific Investment Management, told Bloomberg News. Governments will face very difficult decisions in the coming months. They have injected nearly $20 trillion in fiscal and monetary support to compensate for the slowdown caused by the pandemic and do not know whether a larger injection will be needed.
Despite all the fears haunting the global economy, there are some encouraging facts. Unemployment fell sharply in the United States last August, China has seen a strong rebound in activity and Germany has good data on its industrial activity. Emerging markets are also relieved by the falling dollar. But these stimuli will not last long and it will be some time before vaccines are available. Public spending will be necessary to maintain activity rates.
Major challenges remain. Many people have lost their jobs as a result of the reorganization of business activity. It will be necessary to rehabilitate workers in industries that are not currently viable and this process may take some time. Some of the major US companies have already announced job cuts. According to Bloomberg, Maersk is planning a major restructuring that will affect thousands of people working for the world's largest container shipping company. Ford is going to lay off 5% of its employees in the United States and United Airlines will cut around 16,000 jobs next month.
Consumption in China has contracted despite the control of the virus. Consumers are reluctant to spend and the country's biggest banks have just recorded the worst fall in profits in more than a decade, while outstanding debts are piling up. In Europe, activity indicators are fading and factories are trying to cut costs as demand weakens and production cuts reduce profit margins. Japanese Prime Minister Shinzo Abe, before resigning his post for health reasons, warned at a press conference that major efforts would be needed to contain the virus next winter.
Stock markets are reluctant to accept uncertainty and, in the long run, they will suffer losses if they do not see improvement. "We need to look beyond what happened this week, to the long term. And there we see that consumption is suffering," Catherine Mann, chief global economist at Citigroup, told Bloomberg. The continued spread of the virus, with epidemics around the world, is very worrying. Even when a vaccine is designed, making it available worldwide on the scale needed will take time, according to Warwick McKibbin of the Brookings Institution and the Australian National University. Their models suggest that the virus could have an impact on the global economy of some $35 trillion by 2025. "A large part of the population needs to be vaccinated before economic costs start to come down," McKibbin estimates.