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 “Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalization of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising COVID death tolls. The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere. The global economy is projected to grow 6.0 percent in 2021 and 4.9 percent in 2022.” (IMF, World Economic Update, July 2021) 

The global economic scene remains very distressing, particularly because the access to vaccines is so clearly determining the economic recovery prospects of the various countries. 

The heart of the matter is that close to 40% of the population in advanced economies has been fully vaccinated, while only a little more than 10% of those in the emerging market countries have been vaccinated, with even far fewer are vaccinated in the low-income countries.

And as the IMF’s recent projections indicate, low-income and emerging market countries continue to face rising prices and an unusually weak economic recovery, while the advanced countries which are recovering faster because of vaccine access, are still not assured of a rapid recovery from the pandemic recession.  

In this regard, it is useful to review how badly the economies of some of the key countries performed both in terms of the pandemic downturn and in terms of the projected path of recovery.  

When the pandemic triggered an economic decline in 2020, the hardest hit advanced countries in terms of real GDP were Spain (-10.8%), the United Kingdom (-9.8%), Italy (-8.9%), and France (-8.0%).  

Bear in mind that a 2% or 3% positive GDP expansion would be the usual growth norm for most advanced countries, so these 2020 contractions were quite huge. Even the US, which experienced a 3.5% growth contraction last year, was about 5.5% or more below its usual normal growth rate.   

China’s economy, which is still classified as part of the developing world, expanded 2.3% in 2020, though Mexico and India each posted large economic contractions in 2020, -8.3% and -7.3% respectively.

As a glance at the accompanying two tables will indicate, the projected country economic recoveries in 2021 and 2022 very much reflects a country’s access to life-saving vaccines. 

Thus, the US economy which contracted 3.5% last year, is projected to expand 7% in 2021 and 4.9% in 2022. China’s projected economic recovery is even stronger, 8.1% this year and 5.7% in 2021. Both countries are massive suppliers of Covid vaccines. 

At this point, the relative country performance in the IMF’s global economic projections is not too controversial, since the general outline was fairly clear once vaccine production scaled up and its maldistribution by country also became better known.  

Indeed, it was widely understood that the pandemic would become a major fault line in the global projections. What really wasn’t known, however, was the time duration of the pandemic and its many iterations and variants. 

With all of that in the background there are still other important uncertainties surrounding the benchmark economic growth projections. 

For example, economists are very much worried that an inflation surge could upset financial markets and/or trigger an unwarranted early tightening of economic policy in the advanced economies. 

Obviously, the accompanying IMF benchmark projections assume that the important central banks will look through the current supply-driven inflation spike and recognize that the true threat coming out of the pandemic will probably be deflation or stagnation.