Growth for the world’s largest economies has been uneven according to the index, highlighting the precarious outlook that will form the backdrop for the annual IMF and World Bank meetings this week.
With a second wave of coronavirus undermining efforts to get back to normal, business, household and investor confidence shaken, and little scope for further monetary policy stimulus, most countries still have a long way to go before that production reaches pre-pandemic levels.
“A broad and robust recovery is not on the horizon,” said Professor Eswar Prasad of the Brookings Institution, adding that “the risks of substantial and lasting scarring effects on economies are increasing.”
Meetings will be held virtually from Washington this week. IMF Managing Director Kristalina Georgieva said last week that the recovery from the Covid-19 crisis would be “long, uneven and uncertain.” And prone to setbacks. ”
Economic data around the world is weaker than the worst point of any previous slowdown since the Brookings-FT Tracking Index for Global Economic Recovery (Tiger) began in 2012.
The index compares indicators of real activity, financial markets and confidence with their historical averages for the global economy and for individual countries, capturing how normal the data for the current period is.
He showed that the recovery in advanced economies is far from complete after a historic fall in the spring, and that the situation in emerging markets is much worse with indicators still far from normal levels.
Even though the manufacturing industry has rebounded sharply, boosting global trade, and household spending has generally remained strong as governments in developed economies have replaced lost income with wage subsidies, the outlook for businesses is bleak and bleak. Business, household and investor confidence is weak, threatening to undermine the strength of any recovery.
Prof Prasad said: “Private sector confidence has been damaged, which does not bode well for business investment and job creation.”
However, financial markets remained stable after the initial shock, ensuring they did not amplify the health emergency.
Although the recovery has been lukewarm, the world has escaped much greater harm due to the massive use of fiscal policy, Professor Prasad said. Central banks have also done what they can, but monetary policy has been shown to lack ammunition, he said, with the limits of their remaining policy space becoming “increasingly evident.”
“Central banks are in danger of becoming increasingly entangled in their economies through purchases of corporate and government bonds and direct corporate financing, which could make them vulnerable to political pressures and threats to their independence in the future, ”he said.
The United States outperformed many European countries, with unemployment falling over the summer. However, its recovery has slowed in recent months as the country lost control over coronavirus outbreaks and politicians struggled to renew support for jobless households.
In addition to many of the same risks, the euro area faces the threat of deflation; its annual inflation rate recently turned negative. Its recovery has been uneven and linked to the success of the fight against the virus, with Germany performing better than Italy, Spain and France. In all countries, the service sectors have suffered.
In Asia, China is showing the strongest recovery, having regained most of the economic activity it lost when Covid-19 first struck in January and February; despite this, her performance this year will be worse than any since she opened her economy to trade in the early 1980s.
Its success in getting rid of the virus with a severe lockdown and subsequent reopening contrasts with India, which has suffered many more cases and deaths, preventing the economy from functioning.