Given the ebbs and flows of the Covid-19 pandemic, the International Monetary Fund’s assessment of the state of the global economy has changed little over the past three months. Back in April the IMF said world growth would be a chunky 6% this year and it has left that forecast unchanged.
Beneath the surface, though, plenty has been going on. The outlook for advanced countries has improved while that for emerging market economies has deteriorated. A new north-south divide is opening up and that’s a big concern.
The explanation for the rift is simple: rich countries have the financial power to support their economies through the crisis while poor countries do not. The IMF’s forecast for UK growth (which predates the “pingdemic”) has been revised up to 7% – the strongest since the second world war – because of the vaccination programme and Rishi Sunak’s continued support for wages.
Poorer countries are less fortunate, which is why their vaccine programmes lag well behind those in advanced countries and, in some cases, have barely begun at all. The world is now two blocs: better-off countries that can look forward to life returning to something like normal by the end of the year; and those that still face rising infection rates and death tolls.
But, as the IMF rightly notes, permanent recovery is not guaranteed even in parts of the world where infection rates are relatively low so long as the virus is circulating elsewhere. A lesson painfully learned over the past 18 months is that the virus does not respect national boundaries.
So what could go wrong? The IMF has come up with two downside scenarios: one in which emerging countries are hit by a new wave of the virus this year and advanced countries rapidly reverse stimulus policies in the face of rising inflation; and a second in which rising infections affect rich countries as well as poor. In the first scenario, global growth would be 0.75% lower this year and 1.5% lower next than the IMF is currently forecasting. In the second, 0.8 percentage points are shaved off growth in both years. In both cases, the global economy ends up $4.5tn (£3.3tn) smaller than expected by 2025.
Precautions can and should be taken to prevent these scenarios from happening. There needs to be a multilateral push to ensure vaccines are more widely available. Rich countries don’t really need their share of a recently agreed $650bn allocation of IMF special drawing rights, which boost the reserve assets of member countries. They should redistribute them so that poorer countries have greater fiscal firepower. Domestically, advanced nations need to be extremely careful about withdrawing stimulus too soon. The IMF’s message is that plenty could still go wrong. It is a warning worth heeding.
Moonpig shows high street sales might yet fly
The doubling of profits at the online greetings cards and gifts retailer Moonpig is testimony to how lockdowns have changed consumer behaviour. Those who in the antediluvian days of 2019 wandered into WH Smith or Clinton cards when it was a friend’s or relative’s birthday have increasingly plumped for the digital option. A sign of the times is that customers buying a paper or magazine from WH Smith are now offered a 25% voucher for money off greetings cards.
Even so, shares in Moonpig fell after announcing its latest results. Investors were less interested in how the company performed in the exceptional circumstances of the year just gone than they are in how it will perform in the years ahead. Moonpig said sales had started to return to more normal levels as pandemic restrictions were lifted and consumers were allowed to return to shop in person.
The latest snapshot of retailing from the CBI says the same is happening across the board. Growth in internet sales slowed for a fifth month and was the weakest since the business lobby group first started surveying retailers about their online sales 12 years ago.
That doesn’t mean a new golden era is about to dawn for bricks and mortar retailers. It does mean, though, that the imminent death of the high street narrative has been overdone.
Source: The Guardian
Author: Larry Elliott is the Guardian’s economics editor