The Fault Lines In The World Economy

After the pandemic slump in 2020, today in 2021, there is a massive economic boom, as visible across price spectrum and sectors. The profits of listed firms are up, and so are stock prices. 2021 is proving to be another 2006.?

?

Any good news after the pandemic is considered very good news, but three troubles still exist. First, the haves is easily purchasing vaccines, have - nots are however unable to do so. Second, a supply and demand mismatch is adding to the troubles. Finally, stimulus withdrawal is jeopardizing economic recovery causing the widening of the gap between the haves and have - nots.?

?

Some nations are just not being able to vaccinate their populations fast enough, thus being unable to prevent the spread of Covid-19. Permanent removal of lockdowns is thus not possible, and with just 25% of the human population having taken the first dose of the vaccine, and only 12.5% of the human population is completely vaccinated, variants are rapidly spreading.?

?

Shortages of semiconductor chips or microchips have disrupted the manufacturing of automobiles badly. Today, customers want to purchase more automobiles when there is an extreme shortage, and in parallel, the costs of shipping have risen sharply. As these problems get sorted, newly opened economies will pile new pressure. Labor shortages will rise fast, as housing prices have. Inflation may stay around.

?

The central banks of the rich world have bought assets worth $10 trillion since January 2020 and must reverse it now. That will however lead to panic in markets and slower growth rates for sure.?

?

Eventually, all emergency support has to end now, and the bankruptcies avoided till now may surface again quickly.

?

Some are predicting apocalyptic outcomes, like a total crash, or like the inflation in the 1970s, or an end of capitalism itself, but that's not possible. The American economy has seen good vaccination rates and massive stimuli and is now overheating. Labour isn't fully returning to work, and wages are up. Perhaps the end of emergency employment support will pull them to work by September 2021. Australia however offers no such benefits and is yet seeing shortages. So is the attitude towards work changing itself now? That may finally lead to inflation running high, and US Fed may be forced to tighten the policies.

?

Japan has been slow with vaccinations with just 15% of its population being vaccinated so far, while Europe is catching on to its vaccination rates, but with a lower stimulus. So, the inflation levels are low. If other nations react to imported inflation and withdraw support, growth will slump soon, similar to the European area post the 2007-2009 crisis.?

?

Low and middle-income nations aren't benefitting much from the rising commodity and goods demand, and are instead stuck in Covid-19 management and a very good example is Indonesia. Poor nations are slumping badly and will lose all prosperity earned over the years.?

?

As US Fed raises rates to battle inflation, more investors will buy dollars, pushing many currencies down. That means financial instability in emerging countries and higher central bank interest rates. So less jabbing and higher interest rates, together, meaning low growth.

?

By June 2022, things may return to normal, but till then, beware.

- Aindri Abhishek Singh