The “elephant” in the economy room after Covid

The delta type of coronavirus has put additional pressure on the global health battle to combat the pandemic in this fifth wave. Its rapid expansion is hampering progress in vaccine management — about 30% of the world’s population has already received at least one dose, according to data collected by Oxford university– And places it at the heart of the economic stage. Here, delta shows a double face. His dark side is known and threatening Recovery derailed – Check all tourism-related activities in the middle of the summer. The other is the one who turned him into a control for Avoid the risks of economic overheating And that the withdrawal of financial and monetary stimuli is expedited. Delta has become a global economical cooling system for engines.

The balance between these two aspects is very fragile. So much so that there are economists who describe its appearance in the world panorama as the appearance of an elephant in a room. Its effects are absolutely unpredictable. More so at a time when Compared to the second quarter of last year, one of the largest confinement, Stain all log references: With corporate profits peaking, growth at its maximum (after the biggest economic recovery in decades) and the economy backed by central banks, international organizations and governments at full capacity. Stock markets have given a good account of this and have also explored unprecedented highs in the case of Wall Street.

However, at the end of July the Director-General of the World Health Organization (WHO), Tedros Adhanom GhebreyesusHe expressed his concern about the rate of progress in the delta region and warned that the number of infected people around the world between this week and next week would reach 200 million. In the end, financial markets assumed that this crisis was far from over, and that it is not only a major problem in countries with low vaccination rates, but also in countries with high doses but where citizens are showing strong resistance to vaccination. The new variant, which adds an increase in the number of cases to this cocktail, also raises the threshold needed to achieve herd immunity.

At this stage United State It recently confirmed that it is keeping the restrictions on tourism to avoid more evils. In Europe, the situation has forced many countries to restore restrictions on foreign travel. Germany imposed a ten-day quarantine on tourists returning to the country from destinations considered risky such as Spain; France again issued a decree on the mandatory use of masks in certain regions; Italy Make the “Green Passport” (vaccination passport) mandatory for education workers and long-distance public transport users across the country; Although United kingdom The restrictions on travel to Spanish territory were not tightened, and the arrival of the British – the main source – suffered. At the beginning of August, the summer season is still hanging by a thread.

“Uncertainty about the economic and political outlook remains greater than usual.”

Overall, “we see delta rise as a moderate headwind for global growth, but as new information comes in, we can convince ourselves otherwise,” say analysts from Bank of America (BofA). Employment may be the number one variable to show some coolness in the United States, and so there are those who refer to it as “the elephant in the room,” as it is. James McCann From Aberdeen Standard Investments. Last week, Federal Reserve Chairman Jerome Powell specifically cited the strength of these numbers as one of the items he was studying for the Fed to consider starting tapering off. Firm readings in the next two months are likely to give the green light for the tapering announcement at the panel’s September meeting.

Central banks and fear of overheating

Delta contributes to another element of uncertainty when Discussion begins on reducing stimuli, when there is concern about slowing growth in the third quarter, in particular, rising inflation, problems in the supply chain and, increasingly, regulatory risks in giants like China. Global PMIs published in recent days “indicate that the recovery of the manufacturing sector in developed markets is reaching strong levels, while it is declining in China and facing setbacks in some Asian economies where the epidemic is posing problems,” warns the Swiss private bank Julius Bayer.

Specifically, ISM data for July showed the economy was strengthening at a milder rate in manufacturing and a stronger and higher-than-expected rate in services, despite the recovery in cases and restrictions still in place. “Uncertainty about the economic and political outlook remains greater Typically, which makes extracting the signal from the noise more difficult,” they add from the entity. This takes the pressure off the Federal Reserve and the European Central Bank (ECB) when it comes to curbing extraordinary measures. When inflation reached its highest level in 13 years in the US (It jumped to 5.4% in June, according to Bureau of Labor Statistics (BLS) stood at 1.9% in the eurozone, according to Eurostat.

The unequal fight against COVID that affects recovery

The references show an economic outlook that has remained strong in the short term, but the recovery still looks fragile as it remains uneven across regions and countries, within these sectors and across sectors. “the The differences were especially obvious between emerging and developed economies, reflecting the different capacities to benefit from the resources needed to contain the epidemic and support recovery.” Silvia D. Angelo, Chief Economist to Director Hermes Consortium.

This last point is the same as a short-term risk, since More troublesome viral mutations may appear In places where the epidemic was not adequately addressed, as happened at the time with the delta variant. In the economist’s view, despite the hype and hype that governments and institutions have promised to “build back better” through stimulus, it is not clear that strong policies favor an overall environmental recovery. Thus, Dall’Angelo warns that there is a risk of a return to the macroeconomic scenario before the Covid-19 crisis, which is dominated by slow productivity growth, rising inequality and a looming climate crisis.