A fitful global recovery

The long shadow of Covid-19 still hangs over many countries, especially all those that have, for one reason or another, been slow to vaccinate their populations.

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  1. Charles Stanley

Most agree we have seen the fastest period of recovery now the second quarter is well behind us. The lockdowns were toughest and most widespread in the second quarter of 2020. This year, the combination of large monetary and fiscal stimulus with progressive relaxations in the northern hemisphere summer combined to give us some very rapid recovery numbers from the lows of a year earlier.

Now we face a more fitful and patchy recovery.

The long shadow of Covid-19 still hangs over many countries, especially all those that have, for one reason or another, been slow to vaccinate their populations. There are many interruptions or constraints on supply, with shortages damaging long and complex supply chains. There are fears of early withdrawal of stimulus by governments and central banks. The spectre of higher taxes now also hangs in the air from the US to Europe.

Whilst it has been right to expect a surge in inflation and to worry a bit about that especially in the US, we also need to ask what if the slowing recovery slows too far in countries with insufficient and continuing stimulus – and with residual Covid-19 overhangs that adversely affect activity?

Virus spikes worldwide

This summer has seen another upsurge in world cases of Covid-19, up from around 400,000 cases a day to a peak of 750,000 in August. Daily deaths climbed from around 7,500 to more than 10,000 and now have totalled 4.58 million worldwide. The EU/EEA still leads the death table with 754,000, followed by the US at 666,000 and Brazil at 583,000. Deaths per million still see the highest levels in Peru and the Balkans. A lot of Europe has experienced more than 100,000 cases per million, high levels compared with elsewhere. These figures remind us that 90% of the population has still not had this disease.

The economic impact seems to have been a bit bigger in Asia, where early success in 2020 against the virus led to further outbreaks this year followed by tough lockdown responses. Much of Asia has a low take-up or rollout of the vaccine, so there is considerable reliance on social distancing and staying at home policies.

Japan has much of the country under restrictions with a state of emergency in 21 Prefectures until 12 September. It may extend that deadline and has still only vaccinated around half the population. China imposes strict quarantine and lockdowns in places where the disease is detected. It is also enforcing strong controls on its international border, discouraging movement into and out of the country. China has stepped up its vaccine roll out substantially this summer. Korea has had a bad incidence of the disease in recent months and has also made more progress with vaccinations, so over half have now received at least one dose.

Australia, during its winter, has seen as sharp rise in cases from low levels and is still only around 30% fully vaccinated. New Zealand too has relatively low levels of vaccination and has seen an increase in cases despite restrictions. Overall, the case and death level remain very low by world standards.

The US has now fully vaccinated 52% of its population. Its death rate has risen again to a peak of 2,937 on 2 September – above the May 2020 peaks but a bit below the second peak in January 2021. California still has the most cases, followed by Texas, Florida and New York. It seems the virus hits both Democrat and Republican states, despite the different policy response between them. All this means that after an early success with the virus falling, President Biden has found the going tough in August even though the summer weather might help.

Supply and movement restrictions continue

The damage done to travel and service businesses from continuing controls and fluctuating closures is exacerbated further by the disruptions to supply. The world is simply short of microprocessors and iron ore, shipping containers and new vehicles. A rapid recovery has coincided with supply bottlenecks or with a lack of planned additional capacity which the new circumstances demand.

There are now a range of other temporary or localised shortages based around port delays for container ships, delays in driving larger trucks with deliveries, and localised problems with stocks, orders and components. The building trades in various countries have seen shortages of timber, bricks, tiles, paints and other essentials. Easy money has generated more housing demand but met with a shortage of factory capacity and or delivery capacity to get the supplies to the building sites.

Were the northern winter to breed more of the virus there could be a further leg down in activity levels as consumers stayed more at home and governments require more social distancing. The reluctance of people to take the jobs on offer is another reason recoveries are slowing, as businesses find it difficult to expand capacity and output. On a more positive note, markets in Asia are now anticipating more stimulus from Japan and even hoping the Chinese will relax their money and credit controls a bit.

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