The global economy is experiencing a tepid, uneven and fragile recovery from the depths of the COVID-19 recession. The latest update to the Brookings-Financial Times Tracking Indices for Global Economic Recovery (TIGER) reveals pockets of strength in particular economies, but a broad-based and robust recovery does not appear on the horizon.
China’s economy is back on track and the United States appears to have turned the corner, while many other economies are plunging to new depths. As the fight to contain the virus continues, and with fears of a second wave growing, the risks of substantial and lasting scarring effects on economies are growing. Private sector confidence has been shaken, which does not bode well for business investment and job creation.
There are positive omens. Global merchandise trade has rebounded strongly, in line with indications of a recovery in demand for household goods in many economies, although demand for services remains hampered by restrictions and consumer concerns. Financial markets have held up surprisingly well, with stock markets in many countries approaching or even surpassing their pre-COVID levels. Even with near-zero interest rates, banking and financial systems appear broadly stable. Oil prices recovered somewhat, while other commodity prices were supported by consumer and industrial demand.
Click on a country name below the composite index to view charts of the main TIGER indices by country and charts of the indicators that make up the indices, which are broken down by real activity, financialand confidence indicators for advanced economies and emerging markets.
Read more about the recovery in advanced and emerging markets (PDF)
- Advanced economy
- Emerging market economy
- Euro periphery economy
- Periphery of Europe / Advanced Economy
In the United States, industrial activity and the labor market have regained some of the lost ground. The unemployment rate is down and employment levels are up, although both are well below their pre-COVID levels. But rising long-term unemployment and disruptions in the service sector point to a difficult path to a stronger and more sustained recovery. Private consumption growth has slowed with the end of fiscal stimulus, leading to lower household disposable income, and the outlook for further stimulus remains uncertain. Business investment continues to contract, which does not bode well for a sustained recovery in productivity and growth. Stock markets are pausing after a sharp rebound earlier in the year, possibly reflecting concerns over the virus containment strategy. As the November election approaches, heightened political and political uncertainty is likely to keep consumer and business confidence muted.
The Eurozone has been hit by the pandemic and, with deflation setting in, faces increasing risks of a deep and prolonged contraction. The recovery in manufacturing in Germany and many other economies in the zone was more than offset by the contraction in services due to tighter virus-related restrictions. The Japanese economy is in an equally perilous situation, although it has so far escaped deflation. Despite a revival of its services sector, the British economy is also in full contraction, exacerbated by erratic containment policies and uncertainties linked to Brexit.
China has led the global recovery, with many indicators of economic activity already above pre-COVID levels. Industrials and services sectors have revived, buoyed by China’s apparent success in containing the virus. Retail sales and investment in the manufacturing sector also picked up. However, unlike the period following the global financial crisis, it is not clear that China will significantly boost global demand, especially with the government’s new dual circulation strategy emphasizing more autonomy and inward-looking policies.
Other emerging market economies did not hold up well. India is experiencing a sharp slowdown in economic activity and, as the country’s lockdown is eased, faces a resurgence of the virus that could prove catastrophic. The government has pushed through some agricultural policy and labor market reforms, but a banking system hampered by bad debt remains a constraint to growth. Brazil and Russia did not fare much better, with substantial contractions in economic activity and few policy levers to revive growth.
The major central banks have done everything they can to support economic activity and, in some economies, also try to fight deflation. They not only used unconventional monetary policy but, in some cases, even adjusted their policy frameworks to signal their tolerance for higher inflation. Even the central banks of some small advanced economies such as Australia and New Zealand as well as emerging market central banks such as the Reserve Bank of India have resorted to unconventional measures. However, the limits of any type of monetary policy to support growth are increasingly apparent. Central banks risk becoming increasingly entangled in their economies by buying corporate and government bonds and financing companies directly, which could leave them vulnerable to political pressure and threats to their independence from the global economy. ‘coming.
Governments have no choice but to invoke aggressive new fiscal stimulus, even if this may add to already high public debt levels. But this must be juxtaposed with the risks of even greater and lasting scarring of economies in the absence of such stimulus. The global low interest rate environment will limit the burden of interest payments and, rather than crowding out private investment as in normal times, well-targeted public spending could act as a catalyst.
However, to be effective, these measures will need to be complemented by coherent virus containment strategies that allow economies to reopen safely. Concerns about ineffective management of the spread of the virus appear to be a dominant factor holding back a surge in demand and confidence. While the worst of the pandemic recession may have passed, these are still desperate times that call for desperate measures.