The global economy is in a turbulent recovery
The global economy is in a turbulent recovery.

Recent developments indicate that the global economy may be entering what has been cited as ‘the final phases of the pandemic’. Countries, especially in Europe, are lifting COVID-19 restrictions completely, which is likely to revive the hospitality and tourism industries there and around the globe. Yet, passing the pandemic does not mean that its consequences are also behind us.

According to forecasts of the World Bank, the global economy will likely lose some steam in 2022 and grow at a slower rate of 4.1 percent – down from 5.5 percent in 2021. For the most part, this is due to the aftermath of the pandemic.

Uneven recovery

The COVID-19 experience is not the same around the globe. The rich world has higher rates of vaccination than the middle income and lower-income countries. Similarly, the pace of economic recovery in countries is not the same. Advanced economies are recovering much faster than in other parts of the world. In other words, COVID-19 and its aftermath will likely last longer in emerging economies.

Hawkish Fed

Another story is the impact of the Federal Reserve’s policy on currencies in emerging markets. Hawkish expectations are causing a decline in emerging markets currencies and leading to volatility in currency markets, observed by forex traders on platforms including easyMarkets and others.

Supply chain disruptions are still there, but companies are adapting

Some consumers who spent the last two years mostly working from home managed to some cash, as their expenditures decreased. Those accumulated savings are now being used, at a time when supply chains are disrupted and activity at ports is still relatively crowded. The shortage of semiconductors is also impacting industries such as the automobile and electronics industries, among others.

Despite this, there are two positive developments. First, supply chain congestions are showing signs of easing. Second, companies are in fact adapting to the situation as it is. They are now investing in technologies that enable them to have better visibility over their entire supply chain (end-to-end) and to predict disruptions before they happen. They are also reinventing their business models for the post-COVID era, which might be just around the corner.

Troubles in China

China is keen on making the Winter Olympics successful and appearing in a positive light in the media. In a way, this can divert attention from cracks that are appearing beneath the surface in its economy. The high levels of debt in the property sector, one of the biggest sectors in China, have social implications and are a cause for concern.

China’s economy is expected to grow this year, but not as robustly as previously projected, partly because of expensive energy. Rising gas, coal, and oil prices (with a barrel of WTI priced at above $90 at the time of writing) increase costs for the oil-importing country and squeeze margins. China’s growth is particularly important because it influences growth in other countries in Asia, and the stability of its financial system has regional and global implications.

Summary

The global economy is improving but there are still some challenges that need to be addressed. Rising prices of energy products, inflation, changing climate, and geopolitical tensions are not particularly helping the recovery process. The upcoming years will tell us whether the expensive lessons that COVID-19 offered have been learned.