Global economy caps extraordinary comeback from Covid-19 collapse

In Europe and North America, businesses and households are beginning to look timidly beyond the pandemic, thanks to widespread vaccinations. But governments in parts of Asia are introducing new social restrictions and spending plans to combat the fast-spreading Delta variant. Meanwhile, Africa’s low immunization rate means its economic recovery is expected to lag behind other regions.

Nearly 40% of the population in advanced economies has been fully vaccinated against Covid-19, compared to 11% in emerging market economies, according to the International Monetary Fund.

This, combined with large-scale government spending, has spurred an explosion of pent-up consumer spending in wealthy countries. The rapid return of Western economies has in turn stretched global supply chains, strained labor markets and, alongside the upsurge in demand, pushed inflation to multi-year highs. This puts pressure on central banks to start phasing out aggressive easy money policies to chill their economies, which could weigh on the recovery.

The eurozone economy grew at an annualized rate of 8.3% in the three months to June, outpacing the U.S. economy as a whole and ending a brief recession over the winter months. , according to data released Friday by the European Union statistics agency. EU officials expect the bloc’s economy to return to pre-pandemic size in the final quarter of this year.

In the United States, economic output grew at an annual rate of 6.5% in the second quarter and exceeded its pre-pandemic level, fueled by an extraordinary increase in consumer spending and business investment.

The U.S. economy’s return to its pre-pandemic size and eurozone growth in the second quarter mean the global economy is back to its 2019 size, according to economists at Capital Economics and Oxford Economics. The stronger-than-expected euro zone expansion likely closed the global output gap, said economists at the Organization for Economic Co-operation and Development, a think tank. The IMF expects the global economy to grow by 6% this year.

“It’s like no other recession and no other recovery,” said Neil Shearing, chief economist at Capital Economics. “The strength of the recovery was surprising because the old tools and frameworks for thinking about recessions did not apply. I think it has legs and unlike other crises we will return to the trend before crisis.”

Annualized data measures how much an economy would grow if it continued to grow at the same rate over the course of a year. Compared to the first quarter of 2021, the eurozone economy grew by 2% in the second quarter.

“Not everyone is still sure of the impact of this [Delta] variant, but we don’t hesitate to place orders,” said Britta Giesen, CEO of Pfeiffer Vacuum Technology AG, a German vacuum pump manufacturer that saw its orders jump more than 40% last year.

The French luxury group LVMH Moët Hennessy Louis Vuitton announced on Monday a turnover of 28.7 billion euros for the first half of 2021, up 14% compared to the same period in 2019. In Italy, the Giorgio Armani SpA revenue increased by around a third in the first half of 2021 compared to the previous year, thanks to strong sales in China and the United States

While widespread vaccinations in Western countries sparked an economic boom, in Asia the resurgence of Covid-19 this summer hammered consumer sentiment in many countries and disrupted the region’s manufacturing supply chains, a bright spot in global activity during the pandemic as stay-at-home workers ordered more consumer goods.

Factory activity in China grew at a slower pace in June, partly due to disruptions at one of the country’s biggest ports caused by the Covid outbreak. Consumer spending, which has yet to recover to pre-pandemic levels, could be hit even harder as new clusters of the Delta variant were detected in more than a dozen cities this week, prompting measures strict lockdowns.

Uneven global growth is “an important feature of this recovery” that could weigh on the mighty U.S. expansion, Federal Reserve Chairman Jerome Powell said on Wednesday.

For Andreas Gerstenmayer, CEO of Austrian electronics maker AT&S, the Covid-19 pandemic has significantly boosted demand for the components it produces for companies such as Apple and Intel.

The company expects its revenue to more than double over the next five years, to 3 billion euros, or about $3.6 billion. It is hiring hundreds of workers in Europe and plans to hire around 5,000 to staff a new €1.7 billion factory in Malaysia.

But while Mr Gerstenmayer sees no slowdown in China, “in other countries in Southeast Asia, we see the Covid situation getting worse”.

In Germany, Europe’s largest economic and manufacturing power, the business climate has softened in recent weeks as companies worried about supply chain bottlenecks and rising numbers of Covid-19 infections, according to a survey closely watched by the Ifo think tank. German inflation hit 3.1% in July, its highest level since August 2008.

Authorities in Greece and Spain recently imposed new social restrictions on the resort island of Mykonos and the region of Catalonia to tackle rising infections. International tourist arrivals in Europe are down 85% in the first five months compared to the same period in 2019, according to data from the United Nations World Tourism Organization.

In Asia, the slow deployment of vaccines is disrupting some economies. In Indonesia and Vietnam, some industrial zones were recently ordered to operate at limited capacity to prevent the spread of cases, potentially disrupting consumer goods supply chains. Pou Chen Group, a supplier of sneaker brands such as Nike and Adidas, suspended operations at its factory in Ho Chi Minh City for part of July.

Thailand’s finance ministry cut the country’s 2021 growth forecast to 1.3% from 2.3% on Thursday as the country, which relies heavily on foreign tourists, struggled to contain the biggest outbreak of Covid-19 to date. Japanese carmaker Toyota said it would continue to halt production at Thai factories from late July to early August as the resurgence of Covid in Southeast Asia led to component shortages.

The IMF this week lowered its growth forecasts for five Southeast Asian countries: Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

In Africa, several major economies, including South Africa, have implemented new lockdowns in recent weeks to slow a record spike in Covid-19 infections caused by the Delta variant.

The IMF expects Africa’s largest economy, Nigeria, to grow just 2.5% in 2021, despite rising oil prices, while the South African Reserve Bank says it will take Africa’s most developed economy until some time in 2023 to reach its pre-pandemic output. .

Ralph Varathaiah began operating his South African-Indian fusion restaurant from home in January after racking up nearly $14,000 in missed rent for his former premises in a busy Johannesburg shopping mall.

He is now trying to support his own family, as well as three employees, through Uber Eats and other takeout orders. “We don’t know what’s going to happen in the next six months,” he said. “We’re just doing our best to keep things afloat.”

Meanwhile, many businesses have become more efficient as the pandemic has forced them to shift business models and embrace technological change. The US economy has returned to its pre-pandemic level of output despite about seven million fewer workers.

The massive decline in business and leisure travel last year sharply reduced sales for Sixt SE, a Munich-based car rental company. It responded by downsizing its fleet, cutting staff and introducing new services such as long-term hire, said co-CEO Alexander Sixt.

The company also automated and streamlined its processes, eliminating low-margin activities. It has invested in a pricing system that optimizes the use and rates of cars. Its revenues are now rebounding strongly, while its costs are up to 15% lower than in 2019, Mr Sixt said.

(This story was published from a news agency feed with no text edits)