Word On The Street.

Feb 01, 2021

It looks like that the world economy needs lots of oxygen while still reeling front the COVID-19 whose impact will be with us for years to come, but still expected to make a modest recovery of 4.7% in 2021, which would barely offset 2020 losses and according to the IMF the global economy is projected to grow even at a slower 4.2% in 2022.

The U.N. released a  new report on the World Economic Situation and Prospects released data showing  that this once-in-a-century crisis sparked by the global impact of Coronavirus caused the global economy to shrink by 4.3% in 2020 -- the sharpest contraction in global output since the Great Depression that began in 1929 and far higher than the 1.7% reduction during the Great Recession of 2009.

While all the brain power in the world tries to find solutions, it is clear that to recover from the severity of this unprecedented crisis, economies need to start boosting longer-term investments that develop a path toward a more resilient recovery , accompanied by a fiscal position that avoids premature austerity. So far full or partial lockdown measures  affected about 2.7 billion workers, which is about  81% of the world’s workforce.  Another 131 million people were pushed into poverty, many of them women, children and people from marginalized communities. China, the world’s second-largest economy  was the only country in the world to register positive economic growth in 2020,  and the U.N. forecasts that it will grow by 7.2% in 2021

We may like it or not but China may account for about 30% of global growth in 2021. If that happens, it will help many countries in Africa, Latin America and the Caribbean that supply resources and commodities to China. According to the U.N. forecasts, the U.S. economy will grow 3.4%( which is definitely lower than what US is projecting) in 2021 after shrinking 3.9% in 2020, Japan's economy will grow 3% this year after contracting 5.4% last year, and economies of Euro-zone countries will grow 5% in 2021 after shrinking 7.4% in 2020. Developing countries saw a less severe contraction of 2.5% last year, and the U.N. is forecasting a 5.7% rebound in 2021.

The U.N. said “it will remain critical” that the Group of 20 -- the world’s 20 major economies accounting for nearly 80% of world output -- “return to the trajectory of growth, not only to lift the rest of the world economies but also to make the world economy more resilient to future shocks.”

We can all agree that the $12.7 trillion in global fiscal stimulus  more than half from Germany, Japan and the United States prevented a Global Great Depression-like economic catastrophe. “In dollar terms, stimulus spending per capital averaged nearly $10,000 in the developed countries, while it amounted to less than $20 per capita in the least developed countries,” the report said. The fiscal stimulus had two objectives. The primary goal of the fiscal stimulus was to stabilize the global economy so there was no drying up of liquidity, the secondary goal was to stimulate investments and prevent bankruptcies. While the first objective was achieved  we have seen a definite shortfall on the second one. All the major economies saw significant increases in money supply, about 23% for the United States, which isn't surprising since most stimulus money went into the financial markets because households were unable to spend the money or businesses were unable to invest because they were uncertain about the future. We can all agree that the big winners were the stock markets. Japan’s Nikkei 225 increased about 45% between March and December and the Dow Jones and S&P 500 both went up by more than 30%, compared to average increases below 10% in the previous five years.  That is alarming because that shows the disconnect between the real economic activities and the financial sector activities (hello Tesla, hello Gamestop...)

Definitely a lot to think about how all activities will impact our lives not only financially but also our day to day living.

This is part 1 of 2. In the next post I will explore a few of my  top of the mind thoughts on the following: Federal Debt, Environmental Impact on Finances, Healthcare costs, Oil and Gas, US& China, US Dollar, Inflation, Housing and Impact of Defense Spending.

My intention is to give you some insight but also to raise awareness of issues that have or will have further impact in our lives. 

 

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