Covid: Delta variant delays global economic recovery

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(Bloomberg) — The increase in Covid-19 cases in some countries during the summer in the northern hemisphere slows the recovery of the global economy, which is feeling the impact of the delta variant in the operation of factories, reopening of offices and schools.

Instead of entering the final months of 2021 with the certainty that the acute phase of the pandemic is behind us, the perception is growing that booster vaccines may be needed, with the return to offices postponed and borders still closed.

Last week’s data captures a global slowdown with Covid cases affecting travel and spending and worsening supply chain bottlenecks. High gasoline prices also pose a threat.

In the United States, companies stepped on the brakes and slowed down hiring in August, with the lowest number of vacancies created in seven months, while check-ins at airports, hotel reservations and restaurants show weaker demand. Germany’s leading business confidence indicator lost steam, and China’s service sector worsened in August. A global indicator of manufacturing activity declined.

Activity indicators were below expectations in major economies, according to Goldman Sachs, while Citigroup warned that the recovery could slow with greater divergence across sectors and regions.

“The spread of the delta variant is delaying the reopening process and has caused us to revise global growth downwards,” said Robin Brooks, chief economist at the Washington Institute of International Finance, referring to the revised 6.2% forecast to 5 .7% this year.

That stumbling block could complicate central banks’ plans to reduce stimulus to the economy, slowing asset purchases or raising interest rates. Federal Reserve Chairman Jerome Powell warned on Aug. 28 of the continuing slowdown in the labor market due to the pandemic, while Australia’s central bank is expected this week to assess whether it delays stimulus reduction plans as the situation worsens. Covid in the country.

In Germany, Bundesbank chairman Jens Weidmann also cited the risk of a setback in a Sept. 1 speech, while China’s State Council, the equivalent of a government office, ordered extra support for small businesses.

The severity of the slowdown from now on will depend largely on science.

Economies with high vaccination rates allow governments to avoid another round of shutdowns by opting for targeted measures that include proof of vaccination for public places like restaurants. As immunization advances, the economic impact is unlikely to be as strong as in previous waves, Weidmann said.

Emerging economies, however, are still seeking the same access to vaccines as developed nations. The vaccination rate is 58% in the 39 economies defined as “advanced” by the International Monetary Fund, compared to just 31% for the rest of the world, and China’s mass immunization campaign weighs heavily on this number.

Economies dependent on manufacturing and tourism, such as Vietnam and Thailand, have been forced to shut down factories and close borders to tourists. Southeast Asia faces one of the worst Covid-19 outbreaks in the world, ranking in the bottom five spots in Bloomberg’s latest Covid resilience report.

This uneven recovery between developing and advanced economies is only likely to get worse, according to Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis. “The divergence between emerging and developed economies is really getting worse.”

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