The release of worldwide PMI surveys will provide an early snapshot into economic growth and inflation trends midway through the first quarter - Photo: Special

JAKARTA (TheInsiderStories) – The dreaded second and third waves of COVID-19 are here, and any illusion the world can easily control the spread of the virus has largely vanished, said IHS Markit in the latest report. The resurgence is especially pronounced in Europe and parts of the United States (US), where pandemic fatigue has become a formidable challenge for governments.

Even countries with early successes in combatting the disease, such as Germany, have had to reimpose restrictions on restaurants, bars, and other gathering places. Some countries like Czechia, France, Ireland, Israel, and the United Kingdom(UK) have reinstated partial national lockdowns. Successful preliminary trial results for messenger RNA vaccines are encouraging, but the widespread distribution of vaccines is unlikely before mid-2021.

“Even before the recent surge in infections, we were predicting growth would fade in the closing months of 2020 and the beginning of 2021. That fade is morphing into something worse,” wrote the report.

In the case of the Eurozone and the UK, real GDP will contract in the fourth quarter of 2020, and recovery will be limited in the first quarter of 2021. Prospects are a little less dire for the US economy. After the US grows an expected 3.7 percent in the fourth quarter of 2020, average growth in the four quarters of 2021 should be a mere 1.9 percent.

The outlook is brighter in much of Asia, where the infection rates have remained low. After a 4.2 percent decline in 2020, global real GDP growth should reach 4.2 percent in 2021, a 0.2 percentage point below last month’s forecast. Mainstream economists and multilateral organizations such as the International Monetary Fund are calling for more fiscal stimulus, beyond the approximate US$12 trillion already enacted.

The need to bolster struggling economies has swamped notions of austerity. Unfortunately, institutional and political constraints in Europe, the possibility of a divided government in the United States, and limitations on further budgetary expansion in the emerging world mean hopes for big fiscal stimulus are fading.

It said, central banks will continue to shoulder the burden of stimulus. Despite repeated pronouncements to the contrary, monetary authorities around the world are not “running out of ammunition,” as was amply demonstrated during the 2008–09 global financial crisis and the current pandemic. That said, there are limits to the effectiveness of massive asset purchases and other unorthodox monetary policies, not least because they create considerable distortions in financial markets.

Moreover, uncoordinated monetary easing runs the risk of more financial volatility. IHS Markit noted, “Bottom line: Once again, the near-term global economic outlook has worsened, and the most likely policy mix looks to be suboptimal.”

Edited by Editorial Staff, Email: theinsiderstories@gmail.com