Vaccines and fresh economic stimulus promised by US President-elect Joe Biden will give the global economy a chance to put the coronavirus pandemic behind it in 2021, policymakers and industry leaders told the Reuters Next conference.
Their optimism came despite a resurgence in COVID-19 cases that has prompted the World Bank to downgrade its growth forecast for this year and warn that delays in vaccination programmes could pinch recovery even further.
The head of German engineering giant Siemens AG said China is currently driving the world economy but was optimistic about recovery in the United States, where Biden has promised a faster roll-out of vaccines and more economic stimulus.
“In the US … they are holding all the cards and if they put the money to work in a wise way, there is going to be a very, very, strong second half of 2021 and especially 2022,” Siemens Chief Executive Joe Kaeser said.
Europe and the United States both now need to “get their act together and put the billions and trillions of dollars and euros which have been promised to work”, he told the digital forum.
The fight against the pandemic, which has claimed 1.9 million lives globally, has now entered a critical stage as countries around the world roll out vaccination campaigns aimed at immunizing large sections of their populations by year-end.
At the same time, emerging new variants of the virus have raised concerns about vaccine resistance and a faster spread of the disease, while China is battling a rise in cases that has seen more than 28 million people put under home quarantine.
The Washington-based World Bank last week cut its 2021 global growth forecast to 4% from 4.2% and said the rise in output could be as little as 1.6% if there were vaccine delays.
European Central Bank President Christine Lagarde nevertheless stuck to the ECB’s existing forecasts for the euro zone, provided lockdown measures are lifted by the end of March and vaccines adequately distributed.
She cited as positives the fact that, after elections in the state of Georgia, Biden could count on US Senate support for his economic programme and that Britain and the European Union had managed to avert a no-deal Brexit on December 31.
“Some of the uncertainties we had on the horizon that made us look at the future with a dark cloud over our heads, some of that has been cleared,” Lagarde told the conference.
“From that perspective, we start on a more positive basis than what some would like to look at,” she added, vowing that the ECB had the capacity to add emergency stimulus if needed.
The ECB sees growth of 3.9% this year across the 19 countries that use the euro currency, more optimistic than many private sector economists.
Even in the best-case scenario, global recovery is not expected to be even, and concerns are growing that low-income countries could be left even further behind while some sectors most exposed to the pandemic fight for their very existence.
Qantas Airways Chief Executive Alan Joyce expected recovery to be “patchy around the globe” and said the airline has parked its long-haul A380 fleet for the next three years.
“We think it will take that length of time for international demand to come back,” he added.
Chris Hyams, chief executive of job listings website Indeed, said it was still unclear whether demand in sectors such as construction that have managed to hold up during the pandemic has now been sucked out for years to come.
“What we don’t know is, when things return, have people just pulled in the next five years of construction and it will all slow down, or is there more work to be done?” he said.
Asked about the risk that developing nations could be left behind in the economic recovery as their people struggle to pay for COVID-19 vaccines, Lagarde said it would “backfire” on the rich world if they did not show solidarity.
“It is in the self-interest of developed countries to make sure that low-income, developing, fragile states have access to vaccination as it is needed,” the ECB chief said.
World Bank Chief Economist Carmen Reinhart said increasing debt distress in many of those countries meant that China, now the world’s largest official creditor, would need to start restructuring the debt it is owed.
“What I think China will need to do to confront this is what previous other creditors in the past had done, which is you have to restructure,” Reinhart told a panel on economic inequality.
“And restructure big time, meaning either lower interest rates, longer maturities, write-off in principal or some combination of that.”