World economy risks buckling into 2021

25 November, 2020 12:00 AM printer

TOKYO: The surging coronavirus is stoking fears of a fresh downturn for the world economy, heaping pressure on central banks and governments to lay aside other concerns and do more to spur demand.

Hopes are mounting that COVID-19 vaccines will become available as soon as December, but widespread delivery will take months and infections are rising again in many large economies. Authorities are responding with more restrictions to limit the virus’s spread at the price of weaker economic activity, report agencies.

Wall Street economists now say that it wouldn’t take much for the U.S., euro area and Japan to each contract again either this quarter or next, just months after they bounced from the deepest recession in generations. Bloomberg Economics gauges of high-frequency data point to a double-dip downturn, with European factory indexes on Monday justifying that worry, though a U.S. measure of business activity was upbeat. That leaves policymakers hearing calls for more stimulus, even when central banks are already stretched and starting to worry about froth in financial markets. Meantime, politicians from the U.S. to Europe are clashing over just how much they can and should do with fiscal policy.

“While there is much excitement over the progress of vaccine development, it will not be the quick fix that many expect it to be,” Singapore’s Trade & Industry Minister Chan Chun Sing told reporters on Monday. “Manufacturing enough doses, then distributing and vaccinating a significant population of the world, will take many months, if not years.”

Against such a backdrop, the European Central Bank is set to ease monetary policy again next month, while the Federal Reserve could concentrate more of its bond purchases on longer-term securities to push down interest rates. But there are concerns the central banks have run out of room to act decisively and that even easier financial conditions won’t translate into an economic boost. The International Monetary Fund is among those also warning elevated asset prices potentially point to a disconnect from the real economy and so may pose a financial stability threat.

“There is a glut of savings and a shortage of investment,” which is the core problem facing developed economies, former Fed Chair Janet Yellen, who is set to be nominated for Treasury Secretary by President-elect Joe Biden, told Bloomberg’s New Economy Forum last week.


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