UK economy shrinks by only 1.5% in Q1 despite lockdown; India, Brazil, South Africa “weak spots” of the pandemic
The United Nations on Tuesday responded to the rebounding Chinese and US economies by revising its global economic forecast upward to 5.4 per cent growth for 2021, but it warned that surging Covid-19 cases and inadequate availability of vaccines in many countries threaten a broad-based recovery.
In raising its projection from January of 4.7 per cent growth, the U.N.’s mid-2021 World Economic Situation and Prospects report pointed to the rapid vaccine rollout in a few large economies led by the U.S. and China and an increase in global trade in merchandise and manufactured goods that has already reached its pre-pandemic level.
But the U.N. cautioned that “this will unlikely be sufficient to lift the rest of the world’s economies,” and “the economic outlook for the countries in South Asia, sub-Saharan Africa and Latin America and the Caribbean remains fragile and uncertain.”
Lead author Hamid Rashid, chief of the Global Economic Monitoring Branch in the U.N. Department of Economic and Social Affairs, told a news conference that “Europe’s outlook is not as bright as we expected” because of signs of second and third waves of Covid-19 infections.
“The key challenge we face in the world right now is that infections are still rising in many parts of the world, and we are seeing new variants and new mutations affecting large populations in South Asia, also in Latin America,” he said.
“That poses a significant challenge in terms of the recovery and world economic growth.” Rashid said: “Vaccination is probably right now the number one issue to put the world economy on a steady path of recovery.”
He noted, however, that “vaccine inequity is a serious challenge”.
In normal times, he said, 5.4 per cent would be considered a very high economic growth rate, but this year it is barely offsetting last year’s losses and growth is “very uneven and also very uncertain”.
He said the U.N. expects the U.S. economy, which is very strong, to grow about 6.2 per cent this year, “the fastest growth of the U.S. economy since 1966,” and it expects the Chinese economy to grow by about 8.2 per cent.
But he called India, Brazil, South Africa and many other developing countries “weak spots”.
Rashid said that in the past the growth rate of developing countries would be higher than the global average, but this year the average growth rate of many developing countries and regions is lower because of the pandemic.
One of the key drivers of economic recovery has been investment, he said, with some countries like the U.S. seeing only a 1.7 per cent drop in investment last year while some developed countries saw investment drop by 4 per cent of GDP or even more.
The USD 16 trillion in stimulus to counter the economic impact of the coronavirus pandemic “was much needed to avoid a complete meltdown of the global economy,” Rashid said, “but that has not led to massive increase in investment”.
He warned that the “massive surges in stock market prices globally” are creating “something of a financial stability risk worldwide, and we have to be vigilant about that risk as that could also derail the recovery efforts going forward”.
Rashid said the U.N.’s forecast of 5.4 per cent growth this year is far more cautious than other international organizations, including the International Monetary Fund, which last month revised its 2021 projection upward to 6 per cent.
“We’re still optimistic about the global economy,” Rashid said, but “there are a lot of uncertainties that we underscored in our report, especially the spread of vaccination and coverage that needs to happen in the next six months to achieve that kind of growth rate that we project here.”
For 2022, the U.N. forecast that the global economy will grow by about 4.7 per cent is higher than the IMF’s projection of 4.4 per cent.
Official figures show that the British economy contracted by 1.5 per cent in the first quarter of 2021, a relatively modest contraction given that the country was in the midst of a strict lockdown to combat a second wave of the coronavirus.
The Office for National Statistics also said Wednesday that the economy even managed to grow by 2.1 per cent in March when the country began easing some of the restrictions.
The overall first quarter figures provide further evidence that businesses and consumers have adapted to the constraints of lockdown by increasing their online activities. In the second quarter of 2020, when the first lockdown was in place, the British economy contracted by a fifth.
The agency said the strong recovery seen in March was led by the retail sector and the return of schools. The construction and manufacturing sectors also did well as businesses continued to adapt to the pandemic.
Treasury chief Rishi Sunak said the March performance is “a promising sign of things to come.”
The statistics agency also said that exports of goods to the European Union increased in March and are now almost back to where they were in December, the last month that Britain was part of the European single market and customs union. The new free trade deal between a post-Brexit Britain and the EU came into force at the start of 2021, leading to disruption in trade which the British government said represented some early teething problems.
Still imports from Europe remained sluggish in the first three months of the year, outstripped by non-EU imports for the first time on record.