Although the worst of the coronavirus first wave seems to have passed in most of Asia and Europe, in many other places the number of new infections keeps rising, particularly in the Americas and the Middle East.
These differing pandemic experiences will continue to weigh on global economic growth – either through continued restrictions, renewed lockdowns or a tightening of border restrictions. Flare-ups in parts of Asia that had previously had the virus under control, such as Vietnam, show that the world needs to keep on its toes. And the initial bounce in activity in May and June could soften in economies that experience an upturn in new cases.
Having seen the rise in the number of cases adversely affect the US data in July, we could see a similar impact in parts of the world where cases keep rising. This may be evident in fewer consumers returning to cafes and restaurants as well as continued weakness in the travel sector.
Some parts of consumer spending seem to be picking up quickly. Retail sales in many parts of the world have started to recover: Norway’s are even up 15 per cent year-on-year. But goods consumption is much more likely to benefit from catch-up spending: in contrast, spending on services remains depressed in many parts of the world.
This creates risks for the labour market. The number of jobs being advertised across the world continues to fall, notably in sectors not directly affected by lockdowns. Firms continue to shed jobs and the higher-frequency data suggest that it may be a long road back to the same level of employment.
All of this acts as a stark reminder that we cannot separate the health and economic challenges. Until the virus is broadly under control or there is a widely-available vaccine, it may prove difficult for economic activity to return to normal.
The longer that the subdued level of activity persists, the greater the chances of even more adverse spill-overs, such as sharp rises in debt, corporate defaults or financial-market shocks that could further weaken the global economy. So it is still just as important to track the developments in the number of global cases as it is to monitor the economic data.
First published 10 August 2020.
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