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Tribune News Network
The recent positive news regarding the efficacy of the Pfizer BioNTech vaccine is welcome and there is now ‘light at the end of the tunnel’ as far as the global economic recovery is concerned, Qatar National Bank (QNB) has said in its latest weekly economic report.
The global economic outlook for 2021 has improved after the news about the vaccine, the report said adding the vaccines will boost the outlook for the US and Europe more than China as these economies were hit much harder by the virus in 2020.
“Vaccinations will begin only gradually and then take some time to ramp-up given both production and distribution challenges. We expect a significant number of the most vulnerable people to be vaccinated by the end of 2021,” the report said.
“Emergency health measures have limited the damage done by COVID-19 in 2020, and support from both monetary and fiscal policy has helped avoid a wave of persistent unemployment and bankruptcies in the US, Europe and China. However, the US and Europe stand to benefit more than China in 2021 from the effective rollout of vaccines, simply because they suffered more from COVID-19 in 2020,” QNB said in the report.
Global conditions took a dramatic turn with the spread of the COVID-19 pandemic.
European countries have been more proactive than US states in re-imposing social distancing measures, local lockdowns and in some cases even national lockdowns like France and Austria.
Tighter measures are necessary to avoid overwhelming health services, but may well put festive travel, gatherings and celebrations on ice.
Fortunately, the widespread wearing of facemasks, along with improvements in testing, contact tracing and treatment, all help to reduce both the natural rate of infection and the severity of symptoms in most cases.
This, in turn, allows for less-restrictive and more-targeted measures, which will have a proportionally smaller impact on economic activity.
Indeed, even Europe, which has seen the biggest surge in new cases have only seen a modest easing in economic activity according to the Purchasing Managers Index (PMI), although even more timely mobility data shows a bigger impact and we expect the PMI to ease further in November and December.
“Our analysis considers the outlook for the US, Europe, China and Emerging Asia based on the high-frequency indicators already shown, economic policy support and the impact of recent events including the US election and vaccine announcements,” the report said.
First, the outlook for the US economy in the fourth quarter is challenged by the need to dampen the surge in cases of COVID-19.
Fortunately, the Fed seems willing to do everything it can to support the economy and may well provide further policy support at its next meeting.
All in all the US economy may avoid a double-dip contraction, but the level of activity will remain below pre-COVID-19 levels for some time.
“Second, we consider Europe. Despite the effectiveness at bringing the virus back under control, more proactive lockdowns, unfortunately, will come with a larger impact to GDP,” the report said.
“Consequently, we expect a double-dip contraction in the Euro area with GDP falling in the fourth quarter relative to the third quarter,” it said.
Third, China, where COVID-19 was first detected, took drastic action to limit new infections and rapidly got the virus under control. Indeed, most other countries in emerging Asia also managed to limit the spread of the virus.
This, plus the fact that many global supply chains are spread across ‘factory Asia’ and the increase in demand for a range of manufactured goods including electronics and medical supplies have helped support economic activity across emerging Asia.
In addition, governments and central banks typically had much more policy space to support economic activity through a combination of monetary and fiscal stimulus than the US or Europe.
The end result is that China and emerging Asia saw a much more modest impact on economic activity in 2020 than either the US or Europe. Indeed, both China and Vietnam actually managed to maintain positive growth in 2020, unlike most of the rest of the world.
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