It is now a year and a half since the onset of the COVID-19 pandemic and the world’s economy is finally stepping into the stage of recovery. In fact, some of the largest economies in the world are moving on to economic expansion.
Read on to have a quick recap on the outbreak of COVID-19 and its economic impacts to the world before getting into the real deal of this read: the overview of the post COVID-19 global economic recovery. Last but not least, we also cover the undermining risks of the Delta variant resurgence to the economic recovery of Asia Pacific.
The unprecedented COVID-19 outbreak
The coronavirus (COVID-19) was first reported from Wuhan, mainland China, in December 2019. In just a few months’ time, it quickly escalated into what is described by many as an unprecedented outbreak. In recent history, there were several virus outbreaks that brought severe economic and social impacts to the world, which include SARS, A/H1N1, and Ebola. Both SARS and COVID-19 were originated from mainland China, with the former was first reported in Foshan, Guangdong, in 2002. Given with many reasons, including having the similar location of origin for both pandemics, we can obtain a clearer picture on their economic impacts, the severity of the outbreaks, and the effectiveness of containment measures carried out by all local governments by comparing COVID-19 to SARS. In the case of SARS, it took the World Health Organization (WHO) 8 months to declare containment since the organization was notified of the outbreak in February 2003. Nevertheless, several SARS cases were still reported until May 2004, and no cases have been reported worldwide since then. In comparison, the COVID-19 outbreak seems to be never ending, with the discovery of Delta variant in 96 countries in July 2021, one and a half year later since the first reported case. Moving forward, let us take a closer look on the economic impacts of COVID-19.
Impacts of COVID-19 on the global economy
The COVID-19 outbreak has rippling shockwaves throughout the entire spectrum of the world economy, with a large impact on all markets and industries until today, as of the time of writing. The COVID-19 outbreak was estimated to bring the most severe economy impact to the world economy compared to the other virus outbreaks in recent history. It has dealt a heavy blow to the global economy, causing disruptions to supply chains, demand, international trade flows, and travel, together with lockdowns and collapsing stock prices. Several top economies in the world such as the United States, Europe, mainland China, and Japan were headed for recession. The COVID-19 outbreak hit the emerging markets hard as well by adding more burdens and pressures to their already challenging environment such as low global growth, commodity price war, and lack of financial or healthcare resources to deal with the pandemic. In the crude oil market, the prices spiked sharply as a consequence of huge drop in demand while the crude oil production was rising from Saudi Arabia, which further intensified the global supply surplus. Other commodities that were heavily affected are steel and lumber, which play a major role in building materials. The list of the impacts caused by COVID-19 on global economy is almost inexhaustive, but as the global GDP reached its peak in the second quarter of 2021, it is finally safe to say that the global economy has recovered and is moving forward to expansion.
Chart 1: Global real GDP and consumer prices
Overview of the post COVID-19 economic recovery
The first to complete the post COVID-19 economic recovery was the Asia Pacific region due to the resilience of the mainland China economy, followed by the North America. Africa and the Middle East will complete their recoveries in the third quarter of 2021, while Europe and Latin America will reach this juncture later in the final quarter.
The global real GDP in the second quarter of 2021 has surpassed the pre-pandemic real GDP peak attained in the fourth quarter of 2021. Due to the upsurge of COVID-19 cases throughout 2020, the global real GDP experienced a contraction of 3.5%. However, the current global real GDP is estimated to increase 6.0% in 2021, with 1.5% quarter-on-quarter (q/q), its strongest acceleration since 1973. The economic outlook forecast for the United States, Europe, Latin America, and mainland China is optimistic as the June forecast of world growth is revised up to 0.3% in 2021. The global real GDP growth is projected to continue at a robust pace of 4.6% in 2022 before settling to 3.0% in between 2023 to 2025.
Global supply chains were severely disrupted, and rebalancing will take time. The IHS Markit PMI™ global manufacturing survey found that supplier delivery times lengthened in May to the greatest extent in survey history, contributing to the steepest rise in input costs in over a decade and record inflation in selling prices. While some of the delays emanate from suppliers in Asia, manufacturers in Europe and North America were most affected by delivery delays. With consumer demand expected to grow at a rapid pace through 2021, transportation delays are likely to continue into 2022.
Risk of the Delta variant to Asia Pacific economic recovery
The economic recovery momentum in the Asia Pacific has been disrupted by the COVID-19 Delta waves during the second quarter of 2021 due to the renewed lockdowns being imposed in many Asia Pacific countries. The new COVID-19 waves driven by the Delta variant is believed to be the most transmissible variant compared to the Alpha variant. Among the Asia Pacific economies, several Southeast Asian economies are the most severely impacted by the escalating Delta waves, which include Indonesia, Malaysia, Thailand, Myanmar, Cambodia, and Vietnam. These countries are currently suffering significant Delta waves that have triggered the renewed lockdown measures and restrictions to economy activities in most sectors. The situation has been further worsened by the relatively slow progress of COVID-19 vaccination rollouts in the Asia Pacific region compared to other economies such as the United States and Western Europe.
Chart 3: First dose COVID-19 vaccinations, 11 July 2021
The break of the recovery momentum that was finally gained during the second quarter of 2020 through a series of pandemic-related restrictions and travel bans is pushing the pace of economic recovery to be more dependent on the vaccination rate and the speed to achieve herd immunity among the affected economies. The recovery of international tourism and travel activities in Asia Pacific region are also expected to continue being impeded by the international travel restrictions. Hence, the GDP of the affected economies is expected to recover in a more protracted and gradual trend as the international tourism and travel is one of the key GDP contributors.
Overall, most of the largest economies in the world have attained a steady economic recovery or expansion since the second quarter of 2021. The resurgence of the Delta variant while the vaccination is rolling out slow is definitely rubbing salt onto the wound to the economic recovery pace of the Asia Pacific. However, we could still hold high hopes to the recovery of the world economy in overall with the expectation of global real GDP growth is able to continue at a robust pace in 2022.
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In this role, she helps clients assess worldwide business and financial opportunities and risks. Ms. Johnson co-authors the Global Executive Summary, manages the Executive Strategy Council, and presents the economic outlook to international conferences. She previously served as North American research director and chief regional economist with Standard & Poor's DRI, and managing director of global macroeconomics with Global Insight, predecessors of IHS Markit Economics & Country Risk that is now part of IHS Markit. Ms. Johnson is a former director of the National Association for Business Economics and the NABE Foundation and was named an NABE Fellow in 2014. She is past president of The Boston Economic Club and a member of the American Economic Association. Ms. Johnson holds a Bachelor of Arts in Economics and Mathematics from Wellesley College, US, and earned her Master of Arts in Economics from Harvard University, US, with concentrations in Finance and Macroeconomic Theory.
- Consumer Markets
- Country / Territory Risk
- Global Economics
- Regional Economics
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Rajiv previously worked as Director for South-East Asia for The Economist Group. His previous experience includes working for UBS as Executive Director for Asia-Pacific Country Risk and for the Royal Bank of Scotland as an international economist. He has also worked for an international organization, the Commonwealth Secretariat, as a senior economist in the International Capital Markets Department. Rajiv's experience also includes working as a consultant for the United Nations and the Asian Development Bank.Rajiv is a graduate of the London School of Economics, for the B.Sc.Econ.Hons. in Economics, and received his M.Sc. and D.I.C. from Imperial College at London University. Rajiv has published widely on a range of economic, trade and investmentrelated topics, with over 100 published articles. He frequently speaks at international conferences on the global and Asia-Pacific economies, including at World Economic Forum and Euromoney events as well as at United Nations conferences. He regularly appears on international TV programs, including for the BBC, CNBC, Bloomberg, Channel News Asia, CNN and Al Jazeera TV.He is the author of "Future Asia", published by Palgrave Macmillan in 2013, "Asian Megatrends" published by Palgrave Macmillan in 2016 and "Emerging Markets Megatrends" published by Springer/Palgrave Macmillan in 2018.
- Global Economics
- Emerging Markets
- Gross Domestic Product (GDP)
- Scenario Planning
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