Global Economic Recovery and Potential Hurdles Ahead
This question has been on our minds for a very long time. Most of us are noticing tremendous changes in the current business world with innovative startups leading the economy towards progress and industries that were once drowning in debt, now finally bouncing back. The global economy seems to be progressing by leaps and bounds after the pandemic restrictions finally eased down, however, is the speed of this progress fast enough to remunerate for all the economic losses suffered so far?
In a recent study published by the Flinch on 16th September 2021, it was found that there has been a great demand for durable goods, while the supply bottlenecks try to curb the rate of output expansion in order to keep inflation pressures at bay. However, the threat of inflation should ease as the growth of demand moderates, enabling the supply chain to function smoothly.
The growth of the economy and its limitations:
As per the report published by Fitch, world GDP is expected to grow by 6.0% in 2021, which was later changed from 6.3% in the June GEO. Supply limitations are causing continuous breaks in the recovery speed, and the report has revised down the US 2021 GDP forecast to 6.2% from 6.8% in June. A larger share of demand growth is being showcased in a price hike and US inflation forecasts have been revised up again.
Vaccination drives have been quite effective in controlling the rise in the number of new Covid-19 cases in Europe and the US, which in turn has been beneficial for their economy. But virus dynamics are influencing demand growth more heavily where vaccination rates remain lower. The pandemic is still constraining the labor supply.
Factors affecting the global economic recovery:
In the forecast for June 2021, it was clearly stated that the advanced economies will receive complete vaccination for their populations in order to effectively control the pandemic by the end of the year. Important industries and developing economies will also witness a substantial reduction in the number of new cases. However, this prediction is also subject to considerable uncertainty. Depending on the state of the pandemic, corporate bankruptcies, financial losses, or even social unrest could create a hurdle in the economic recovery. On the other hand, a faster control of the pandemic could generate more vigorous global growth.
Even as we head towards economic recovery, it’s difficult to overcome all the setbacks that the pandemic has caused to the overall development gains. While per capita income growth is estimated to be 4.9% among the developing countries and economies this year, the economic growth for the low-income countries is going to be extremely slow. Per capita income losses occurred in 2020 will not be fully recovered by 2022 in about two-thirds of emerging markets and developing economies, including three-quarters of tenuous and conflict-affected low-income countries. By the end of 2021, about 100 million people are expected to fall far below the poverty line. These intense impacts will be extremely harsh for the most vulnerable groups – women, children, and unskilled and informal workers.
Industries that are creating economic recovery and growth:
The economic losses every country has suffered has been countless. Amongst these countries, the worst hit ones are those whose livelihood depends on tourism. Several developing countries in the Asia-Pacific and Western Hemisphere with small island states in particular, the effects of the pandemic have been quite severe. Before the pandemic hit, tourism was a huge business, accounting for more than 10% of global GDP.
To recoup this major loss, vaccination rollouts, government funding and investments in digital technology needs to be leveraged. Some governments are already doing their bit by providing financial support, either directly or through soft loans and guarantees to the industry. Thailand allocated $700 million to boost domestic tourism, while Vanuatu offered grants to small and medium-sized enterprises. Countries have also been assisting firms to adapt their business models and retrain staff. In Jamaica, the government offered online training certification classes to 10,000 tourism workers to help improve their skills.
Productivity enhanced by digital transformation gives rise to the Fourth Industrial Revolution:
Digital innovations have already transformed every industry with their advanced technological solutions and effective working techniques. Most of these techniques will be sustained for several years to come. Various working professionals stated that they’ve become 20 to 25 times faster while working on their usual tasks. Some of the notable changes that advanced technology has enabled us to make are – eliminating supply-chain redundancies, enhancing data security, and speeding up internal operations with accurate numbers.
How these new changes affect our long-term productivity may not be known to us until a few more years. However, it’s worth considering that the productivity rate in the US, in the third quarter of 2020 rose 4.6 percent, following a 10.6 percent increase in the second quarter, which is a highly impressive improvement since 1965.
The global pandemic has enabled us to accept the digital transformation and the changes that it brings into our day-to-day lives for the better. Today, we are noticing an entirely new generation of entrepreneurs who are driving the wave of innovation and leading the global economy to great heights. From customer service to supply chain management, every task has been made seamless with the help of modern technological solutions such as Artificial Intelligence (AI) and Machine Learning (ML).
To conclude, we can say that the global economic recovery is speeding its pace in certain developed countries that are equipped with multiple resources. However, under-developed and poverty-stricken countries still seem to have a long way to go.