THE coronavirus has crippled the world economy. Global GDP suffered its sharpest drop since the end of the second world war in 2020, millions were unemployed or furloughed, and governments pumped trillions of dollars into their economies to prevent greater damage.
Inequality is also rampant. While America’s 651 billionaires have increased their net worth by 30% to US$4 trillion, a quarter of a billion people in developing countries could face absolute poverty, and up to half the global workforce may have lost their livelihoods.
The speed at which the pandemic can be contained will have a huge bearing on how the world economy performs. In the race between new virulent strains of the virus and the vaccine roll-out, early victory is by no means assured. Even rich countries that have secured most of the available vaccines may fail to inoculate enough people to provide herd immunity until the end of 2021. In developing countries, where vaccines will generally be scarce, the virus is expected to spread further.
The big winners are likely to be countries like China and South Korea that succeeded in suppressing COVID-19 early. China’s economy is projected to grow in 2021 by 8%, over twice that of the most successful western countries even before the pandemic.
China’s export-led economy has actually benefited from lockdowns in western countries. Western demand for services like entertainment and travel may have declined, but demand for household consumer goods and medical supplies has increased. Chinese exports to the US have reached record levels despite the high tariffs imposed by the Trump administration.
China is also expanding its economic influence throughout Asia, with a new free trade area in the Pacific and huge infrastructure projects along its trade routes to Europe and Africa. It is investing in advanced technologies to reduce its dependence on western supply chains for components such as semiconductors. China could now overtake the US as the world’s largest economy within five years, twice as fast as previously predicted.
Harder times elsewhere
For rich countries such as the US, UK and those in mainland Europe, the picture is less rosy. After brief recoveries in summer 2020, their economies stagnated. This was driven as much by the second wave of the pandemic as lockdowns. In the US, for instance, employment and growth closely tracked the pandemic rather than the unevenly applied lockdowns as business and consumer confidence slumped. Even with some recovery next year, these economies are expected to be 5% smaller in 2022 than if the crisis had not occurred.
OECD GDP projections (Q4 2021 vs Q4 2019)