By now, the Covid-19 pandemic has reached almost every country in the world and it has left a devastating effect on the global economy. As the world stood still, governments from all over the world witnessed plunging economies. Since then, a number of vaccines have been developed across the globe and some are still in the development phase. But we also need to recognise that vaccine programmes are an investment for any country as they improve public health, life expectancy, and work performance. Swift vaccination can also reduce government spending on disease treatment and control. Without the vaccine, it will be extremely difficult to end the spread of Covid-19. The pandemic launched an economic crisis unprecedented in speed and clarity. In order to contain the disease, most countries ordered nonessential businesses to shut down. What followed was a massive number of people losing their jobs and the demands of certain products plugning all over the world.
The Covid-19 pandemic also showed its effects on the fragile economy of Middle East and North Africa (MENA) as the region faces lockdown measures, interrupted supply chain, major declines in tourism, and temporarily low oil prices. Iran was one of the early victims of the pandemic, with a first wave of fatal cases as early as March 2020. Similar to Europe, the MENA regions, barring a few countries, faced three waves of the pandemic. Disruption of the global value chain and capital flow also affected the domestic production and demand, not to mention the confinement measures imposed for containment reasons in most of MENA countries brought the economy for many sectors to a standstill. Most governments have responded with monetary and fiscal measures to protect companies from going bankrupt. The effectiveness of these measures ensure a swift recovery once the spread of the virus is under control. But how well these sectors perform also depends on how well they were doing before this tragedy struck.
Vaccines are vital for global economic recovery
While the Covid-19 vaccines are one of the most successful ways to get the world economy back on track, it has also been witnessed that vaccines are not equally available in all the regions. Early during the pandemic, when Pfizer announced that they have come up with the vaccine for Covid-19, they also mentioned that they intend to profit from this. In the first three months of 2021, Pfizer’s vaccine brought in $3.5 billion in revenue and hundreds of millions in profit. Other companies that have developed the vaccines are making marginal profits as a result of Covid-19. Moderna received public funding to develop its Covid-19 vaccine and expected to earn in billions from the vaccine sales. Even with AstraZenca and its ‘nonprofit’ model, it will receive billions in revenue and it can also raise its price once the pandemic is considered to be over.
Amid all of this, the rich nations are refusing to share their vaccines with the developing nations speedily or equitably. While 60 percent of the adult population in the UK is completely vaccinated, only 1 percent of Uganda’s population has received both the doses needed. According to data, the 50 least wealthy nations of the world are home to 20 percent of the entire world’s population and have received only two percent of vaccine doses. Following the news of the release of the first Covid-19 vaccine, the Organisation for Economic Co-operation and Development (OECD) mentioned that there is hope for the first time since the pandemic began. Hopes of life one day returning to a semblance of normality for the world were given a huge shot in the arm, quite literally, after Pfizer and BioNTech announced that they have developed a Covid-19 vaccine vaccine that is more than 90 percent effective in preventing the contraction of the virus.
In response to this, the International Monetary Fund (IMF) stated that a faster global economic recovery was feasible since it meant that transmission among people will be reduced, and that will allow activity to return more rapidly to pre-pandemic levels than currently projected, without triggering repeated waves of infection. Experts have predicted that from the middle of 2021, global recovery will start strengthening as vaccines are rolled out across the world, and social-distancing measures begin to be relaxed. While the recovery path is proving to be bumpier than expected, as the second wave of the virus prompts new restrictions, the vaccine news is very positive for the economic outlook over the next two years. Rating agencies such as the Global Economic Outlook published in December see global gross domestic product (GDP) falling by 3.7 percent in 2020, which is smaller than the 4.4-percent contraction it predicted in September.
However, Europe and North America will contribute less than their respective weightings in the world economy. According to experts, the European Economy is predicted to decline by 3.6 percent in 2021 and 3.3 percent in 2022, while the US economy is projected to expand 3.2 percent in 2021 and 3.5 percent in 2022. Even after six months of vaccine rollout, not everyone had received them immediately. In fact, time and again we have seen headlines regarding the vaccine crisis in many parts of the world, especially in Southeast Asia and Africa. Currently, there are not enough doses for 7.8 billion people of the world and it’s likely to stay this way until some time. A lot of work is needed to ensure the world can successfully move into a post-COVID era with the global economy operating once again at full capacity.
Vaccine inequality could disrupt growth
The International Monetary Fund (IMF) has released a stark warning for the global economic recovery, saying that the divergence between higher- and lower-income nations is getting worse because of Covid-19 and its highly unequal rollout of vaccines. In it’s updated report titled ‘World Economic Outlook’, IMF said overall economic risk remains significant. The report also showed an upward growth for all developed nations but downgraded the prospects for emerging and developing markets, showing that the recovery is largely confined to specific regions and countries.
The global economy was projected to grow at the rate of 6 percent in 2021 and 4.9 percent in 2022, which is also considered to be the strongest rebound since the 1980s, when the economic body started keeping records. The 2022 estimate was made earlier this year, keeping in mind that experts expected the virus to slowly die down. Both the above projections are made keeping in mind the expectations of further fiscal support in the US and the stronger growth trend observed in the wealthier nations.
Gita Gopinath, chief economist of IMF mentioned that if the pandemic gets worse, the already fragile economy would tighten further, which, in turn will inflict a double hit on almost every emerging market, thereby severely setting back their recovery. But, for emerging and developing markets as a group, growth projections for this year were cut down by 0.4 percent from the previous number revealed by the IMF. The primary reasons behind the lowered numbers are lower vaccination rates, higher infection rates, and less fiscal firepower to support their economies. Gopinath did mention that the primary reason for the downgrading of the market is the Covid-19 virus. She also mentioned that amid all of this, if there is political instability and geopolitical risks, the inequality will worsen further.
While the developing economies of the world saw annual per capita income decline by 2.8 percent relative to pre-pandemic levels, the IMF said the decline was much more for middle and lower income countries, standing at 6.3 percent, except China. It has been more than a year since the pandemic started and vaccine access still remains as the best option for global recovery. IMF in its report also mentioned that even rich nations with better rollouts may face headwinds if the virus continues to circulate around the world. According to a calculation by the IMF, across advanced economies, nearly 40 percent of people have been fully vaccinated. Compared to the emerging markets, that rate is only 11 percent and only a tiny fraction for lowest income countries.
Seeing these trends, the IMF urged the other countries to improve their cooperation on fighting the pandemic, mentioning that it has strong economic benefits. The latest report mentioned that better global cooperation on vaccines can help prevent new waves of infection and emergence of new viruses, which, in turn will end the pandmeic sooner. And as we all know, the sooner the pandemic ends, the faster everything will be back to normal, especially among emerging markets and developing economies.
Another strong area of divergence being offered by the government is fiscal support. For many of the world’s lower income countries, the support given was already depleted last year. During the same period, the low-income nations are at a risk of facing upward price trends, especially if food costs don’t go down. This could increase the borrowing cost of middle to lower-income countries, along with some existing concerns. Gopinath also mentioned that central banks don’t need to take any action immediately, but they should be prepared to stick to their stricter policies if price rise keeps increasing. One way to help ease this massive pressure is the IMF’s issuing $650 billion in Special Drawing Rights (SDRs). These funds can help a lot of countries around the world to cope with the economic fallout from the pandemic but the allocation will favor wealthier nations since the distribution is based on quota share by the IMF. Some governments and activists are calling for weather nations to donate their chunks of the allocation to those in need. While Gopinath didn’t exclusively promote this proposal, she lent her support to the idea.
Covid-19 delta variant a growing concern
The rapid spread of the delta variant of Covid-19 is causing economists to worry about Europe’s economic outlook as the risk of infection rises along with reintroduction of travel with social restrictions. In the recent months, we have witnessed the lifting of lockdown measures across many regions in Europe, which, in turn, has led to an increase in business activity, shopping, and household earnings. This is making economists forecast a positive economic outlook for Europe. However, these assumptions seem doubtful ever since the infectious delta variant started accounting for the majority of new cases in many European countries and is driving infection rates up to their highest level for months. Germany and France warned their citizens against travel to Spain because of the growing number of delta variant cases. According to recent media reports, Spain’s tourism sector suffered a major blow as the country crossed Portugal, registering the highest number of cases in mainland Europe. This period was critical for the economy to grow as it attracts a lot of global tourism.
Pablo Hernández de Cos, governor of the Bank of Spain mentioned that the forecast of strong economic rebound was made keeping in mind that the global health crisis will be averted after the summer and the Spanish tourism sector will be back on its feet. He also warned saying that there is still a lot of uncertainty surrounding the new Covid-19 variants and what kind of containment measures we need to take to contain the spread further. The European Centre for Disease Prevention and Control in its July report mentioned that infection rate for the EU increased to 51.6 per 100,000 people, but hospitalisation and death rates remained stable.
Paolo Gentiloni, the EU’s economics commissioner, said the forecasts did not undertake the repercussions of the delta variant. It was rather a side effect or a downside risk. Hospitalisations and deaths from the virus remain very low, while more than 70 percent of EU adults are fully vaccinated. Economists have pointed out that the delta variant is primarily targeting the younger people, who are less likely to fall fatally ill. Despite the rise in cases, the Spanish government reports that hospitalisation rate is only 2.6 percent of beds occupied by Covid-19 patients compared with 2 percent a week ago and the infection rate is less significant among the vaccinated people, when compared to the unvaccinated ones.
India is one of the countries that faced the worst wrath of the delta variant. The infectious strain was discovered last October and because of a casual attitude towards safety measures and a lack from the government’s side, it led to a disastrous second wave, and since then, has swiftly spread globally. The variant, taking everyone by surprise, has managed to dethrone the previously dominant alpha variant, which was first detected in the U.K. last fall, and has been responsible for new infections in Europe along with a steep rise in cases in the U.S. The World Health Organisation has already warned that, based on the estimated transmission advantage of the delta variant, it might rapidly cross other variants and become the dominant circulating lineage over the coming months. WHO also noted that the presence of the delta variant over the last month crossed the 75 percent mark in many countries including Botswana, China, Denmark, India, Indonesia, Israel, Portugal, Russia, Singapore, South Africa and the UK, Bangladesh, Australia.
Fortunately, ever since the cases peaked in May, the situation has improved a lot. On May 7, the cases in India stood the highest at the astounding number of 414,188 infections and several thousands deaths. On August 22, India reported 30,948 Covid-19 cases and 403 deaths in 24 hours. Nonetheless, after the US, India has the second-highest number of recorded Covid-19 cases in the world, with over 31.2 million registered cases and almost 419,000 recorded fatalities. A number of public health officials mentioned that the regional lockdowns in May reduced social interaction and an increasing number of antibodies against Covid among the general population were the primary reason for the decreasing number of Covid-19 cases in India. Overseeing one of the world’s largest vaccination drives is a massive undertaking since India has to vaccinate around one billion adults and the total vaccination rate remains sluggish when compared with other countries around the world.
Global economic outlook positive
The economic prospects of the world have changed sharply from the April 2021 World Economic Outlook forecast in 2021. The inequality of vaccine distribution has divided the world into two parts- those who can afford the vaccine and look forward to a comparatively normal life later this year and those that will still face resurgent infections and rising COVID death tolls. The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere. The global economy is projected to grow 6 percent in 2021 and 4.9 percent in 2022.
Prospects for emerging markets and developing economies have been marked down for 2021, especially for Asia. It is also important to keep in mind that slower than expected vaccine rollout will help the virus mutate further and it might again lead to tightening economic conditions. The actions taken by global economic bodies also play a vital role here. A $50 billion IMF staff proposal, jointly endorsed by the World Health Organization, World Trade Organization, and the World Bank, provides clear targets and action aimed at ending the pandemic. The proposed $650 billion General Allocation of Special Drawing Rights at the IMF is set to boost the assets of all economies and is expected to ease liquidity constraints.