Management of diverging collections – Analysis – Eurasia Review

A year ago with the COVID-19 pandemic and the global community still faces extreme social and economic tensions as the human toll rises and millions of people remain unemployed. However, even with great uncertainty about the trajectory of the pandemic, a way out of this health and economic crisis is increasingly visible.

Thanks to the ingenuity of the scientific community, hundreds of millions of people are being vaccinated and this should lead to cures in many countries later this year. Economies also continue to adapt to new ways of working despite reduced mobility, leading to a stronger-than-expected rebound in all regions. Additional fiscal support in major economies, particularly the United States, has further improved the outlook.

In our last Global economic outlook, we now expect a stronger recovery in the global economy compared to our January forecast, with expected growth of 6% in 2021 (0.5 percentage point improvement) and 4.4% in 2022 (improvement 0.2 percentage point), after an estimated historic contraction of -3.3% in 2020.

However, the future presents significant challenges. The pandemic has yet to be overcome, and cases of the virus are accelerating in many countries. Recoveries also diverge dangerously between and within countries, as economies with slower vaccine deployment, more limited political support, and greater reliance on tourism fare less well.

The improvements in global growth for 2021 and 2022 are mainly due to improvements for advanced economies, in particular a significant improvement for the United States (1.3 percentage points) which is expected to grow by 6.4% this year. . This makes the United States the only major economy that is expected to exceed the level of GDP it was predicted to have in 2022 in the absence of this pandemic. Other advanced economies, including the euro area, will also rebound this year, but at a slower pace. Among emerging markets and developing economies, China is expected to grow 8.4% this year. While the Chinese economy had already returned to pre-pandemic GDP in 2020, many other countries are not expected to do so until 2023.

Sizeable challenges ahead

These divergent recovery paths are likely to create larger differences in living standards between countries compared to pre-pandemic expectations. The average annual loss of GDP per capita over the period 2020-24, compared to pre-pandemic forecasts, is expected to be 5.7% in low-income countries and 4.7% in emerging markets, while that in advanced economies, losses are expected to be less than 2.3 percent. These losses offset gains in poverty reduction, with 95 million more people expected to join the ranks of the extremely poor in 2020 compared to pre-pandemic projections.

Uneven recoveries are also occurring across countries, as young and low-skilled workers remain the hardest hit. Women have also suffered more, especially in emerging countries and developing economies. As the crisis has accelerated the transformative forces of digitization and automation, many lost jobs are unlikely to return, requiring a reallocation of workers between sectors, often with heavy penalties. on income.

Swift political action around the world, including $ 16 trillion in budget support, prevented much worse results. Our estimates suggest that last year’s severe collapse could have been three times worse without such support.

Because a financial crisis has been averted, medium-term losses are expected to be lower than after the 2008 global financial crisis, at around 3%. However, unlike the 2008 crisis, it is emerging markets and low-income countries that are likely to suffer the greatest scars given their more limited policy space.

A high degree of uncertainty surrounds our projections. Faster progress with vaccinations may elevate predictions, while a more protracted pandemic with viral variants that vaccines elude may lead to severe degradation. Multi-speed recoveries could present financial risks if interest rates in the United States rise further unexpectedly. This could lead to a disorderly disruption of inflated asset valuations, a sharp tightening of financial conditions and a worsening outlook for recovery, especially for some emerging markets and heavily indebted developing countries.

Working together to give people a chance

Policymakers will need to continue supporting their economies while facing more limited policy space and higher debt levels than before the pandemic. This requires better targeted measures to leave room for prolonged support if needed. With multi-speed recoveries, a tailored approach is needed, with policies well calibrated according to the stage of the pandemic, the strength of the economic recovery and the structural characteristics of each country.

At present, the focus should be on emerging from the health crisis by prioritizing health spending – on vaccinations, treatment and health infrastructure. Budget support must be well targeted to affected households and businesses. Monetary policy should remain accommodative (when inflation behaves well), while proactively addressing financial stability risks using macroprudential tools.

As the pandemic is pushed back and labor market conditions normalize, supportive measures such as worker retention measures are expected to be gradually reduced. At this stage, more emphasis should be placed on the reassignment of workers, including through targeted hiring subsidies and retraining of workers. With the lifting of exceptional measures such as moratoriums on loan repayments, business bankruptcies could rise sharply and endanger one in ten jobs in many countries. To limit long-term damage, countries should consider converting previous liquidity aid (loans) into equity-like support to viable firms, while developing out-of-court restructuring frameworks to accelerate possible bankruptcies. Resources should also be devoted to helping children make up for lost teaching time during the pandemic.

Once the health crisis is over, policy efforts can focus more on building resilient, inclusive and greener economies, both to support the recovery and to increase potential output. Priorities should include investments in green infrastructure to help mitigate climate change, investments in digital infrastructure to boost productive capacity and strengthening social assistance to stop rising inequalities.

Financing these efforts will be more difficult for economies with limited fiscal space. In such cases, improving fiscal capacity, increasing fiscal progressivity (on income, property and inheritance taxes), deploying carbon pricing and eliminating unnecessary spending will be essential. All countries should anchor their policies in credible medium-term frameworks and adhere to the highest standards of debt transparency to help contain borrowing costs and ultimately reduce debt and replenish reserves for the country. to come up.

On the international scene, above all, countries must work together to ensure universal immunization. While some countries will begin large-scale immunization by this summer, most, especially low-income countries, will likely have to wait until the end of 2022. Speeding up immunizations will require increased vaccine production and distribution. , avoid export controls, fully fund the COVAX facility on which many low-income countries depend for doses, and ensure equitable global transfers of excess doses.

Policymakers should also continue to ensure adequate access to international liquidity. Large central banks should provide clear guidance on future actions with sufficient time to prepare, in order to avoid “tantrums” episodes as happened in 2013. Debt Service Suspension Initiative and operationalize the common G20 framework for orderly debt restructuring. A new allocation from the IMF Special drawing rights will provide the necessary liquidity protection in very uncertain times.

While all eyes are on the pandemic, it is essential that progress be made in resolving trade and technological tensions. Countries should also cooperate on climate change mitigation, modernization of international business taxation and measures to limit cross-border profit shifting, tax evasion and tax evasion.

Over the past year, we have seen significant innovations in economic policy and a massive intensification of support at the national level, especially among advanced economies that have been able to afford these initiatives. An equally ambitious effort is now needed at the multilateral level to ensure the recovery and move forward better. Without further efforts to give everyone a fair chance, the standard of living gaps between countries could widen dramatically and decades of progress in reducing global poverty could be reversed.

*About the Author: Gita Gopinath is an economic advisor and director of the research department of the International Monetary Fund (IMF). She is on leave from the public service of the Economics Department at Harvard University where she is John Zwaanstra Professor of International Studies and Economics.

Source: This article was published by IMF Blog

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