World economy in 2021: who’s likely to win and lose

Inequality could increase.
Image: Shutterstock

The coronavirus has crippled the world economy. Global GDP suffered its sharpest drop since the end of the second world war in 2020, millions were unemployed or furloughed, and governments pumped trillions of dollars into their economies to prevent greater damage.

Nevertheless, a 2021 recovery is very uncertain. China’s economy is growing strongly again, but many of the world’s richest nations may not fully rebound until 2022 at the earliest.

Inequality is also rampant. While America’s 651 billionaires have increased their net worth by 30% to US$4 trillion, a quarter of a billion people in developing countries could face absolute poverty, and up to half the global workforce may have lost their livelihoods.

Advantage Asia

The speed at which the pandemic can be contained will have a huge bearing on how the world economy performs. In the race between new virulent strains of the virus and the vaccine roll-out, early victory is by no means assured. Even rich countries that have secured most of the available vaccines may fail to inoculate enough people to provide herd immunity until the end of 2021. In developing countries, where vaccines will generally be scarce, the virus is expected to spread further.

The big winners are likely to be countries like China and South Korea that succeeded in suppressing COVID-19 early. China’s economy is projected to grow in 2021 by 8%, over twice that of the most successful western countries even before the pandemic.

China’s export-led economy has actually benefited from lockdowns in western countries. Western demand for services like entertainment and travel may have declined, but demand for household consumer goods and medical supplies has increased. Chinese exports to the US have reached record levels despite the high tariffs imposed by the Trump administration.

China is also expanding its economic influence throughout Asia, with a new free trade area in the Pacific and huge infrastructure projects along its trade routes to Europe and Africa. It is investing in advanced technologies to reduce its dependence on western supply chains for components such as semiconductors. China could now overtake the US as the world’s largest economy within five years, twice as fast as previously predicted.

Harder times elsewhere

For rich countries such as the US, UK and those in mainland Europe, the picture is less rosy. After brief recoveries in summer 2020, their economies stagnated. This was driven as much by the second wave of the pandemic as lockdowns. In the US, for instance, employment and growth closely tracked the pandemic rather than the unevenly applied lockdowns as business and consumer confidence slumped. Even with some recovery next year, these economies are expected to be 5% smaller in 2022 than if the crisis had not occurred.

OECD GDP projections (Q4 2021 vs Q4 2019)

The bars represent percentage changes.

The biggest losers of 2021, however, are likely to be developing countries. They lack both the economic resources to acquire enough vaccines, and the public health systems to treat large numbers of COVID patients. They also can’t afford the huge government subsidies that have prevented mass unemployment in Europe and the US. With demand for their raw materials crippled by the recession in the west, and little aid available from rich countries to alleviate their large debts, they can ill afford further lockdowns.

Even formerly fast-growing countries like Brazil and India are facing hard times. Many millions of poor workers in the informal sector are being forced back to their villages and urban slums to face mass poverty and even starvation.

Meanwhile South Africa, the wealthiest country in Africa, may have left it too late to obtain enough vaccines to stem the rapid rise in infections.

It has taken a collective approach by becoming a member of the COVAX programme. The programme aims to ensure that poorer countries do not lose out, but it has yet to achieve results.

The new divide

The economic effects of the pandemic have been hugely varied across society. Those in full-time work, often in highly paid jobs working from home, have accumulated substantial savings since there is less to spend wages on.

The very rich, especially in the US, have benefited from huge stock market increases driven by pandemic successes like Amazon, Netflix and Zoom – and this looks likely to continue. The big question for the economy is whether in the coming year those with secure jobs and high incomes will return to their previous spending patterns, or hold on to their savings in the face of continuing uncertainty.

In contrast, many who have lost jobs or businesses or been furloughed will struggle to find new work or return to their previous income levels – especially since low-wage sectors such as retail and hospitality are unlikely to recover fully after the pandemic. This group includes many younger people, women and ethnic minorities.

The inequality could be increased as rich governments scale back the huge subsidies being used to keep many workers employed or furloughed. Rishi Sunak, the UK chancellor, gave clear indications of this intention in his November spending review.

In the US, the political deadlock over further relief spending was only resolved at the last minute, and Republicans will probably now aim to minimise Biden-administration spending despite the profligacy of the Trump years. Europe has just reached an unprecedented agreement to provide EU-funded aid to member states most affected by the pandemic, but tensions over the extent of the package and the recipients will probably continue.

Cooperation could ease the adjustment to a post-pandemic world. But international cooperation during the pandemic has been weak, and economic tensions have further undermined the world’s commitment to free trade – not a good start for Brexit Britain. Domestically, redistribution of wealth and income through higher taxes could give western governments more resources to deal with the victims of the pandemic, but will be politically difficult in a continuing recession.

Social unrest has been one consequence of previous pandemics. Let’s hope that this time, we find the wisdom to tackle the gross inequalities revealed by COVID-19, and build a fairer world.

_The text has been changed to correct a couple of errors that previously appeared in relation to South Africa. _The Conversation

Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of London

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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Well done MW for this article. I read you daily and am often saddened by your bias. Today however I am pleased that you have right stated the facts. 1.) China will benefit from their virus that they let released (we can suspect intentionally) into the world. 2.) the ANC has failed us once again and therefore must leave office. 3.) The worlds richest have used the virus to get richer while the middle class has suffered the most.

You say, “Let’s hope that this time, we find the wisdom to tackle the gross inequalities revealed by COVID-19, and build a fairer world.” My question is how? Through top down state controlled socialist means – creating jobs for us and making us reliant on daddy and mommy president? Or by cutting all the red tape around businesses and getting rid of racist laws like BEE, allowing us to build wealth for ourselves? I vote for the latter. We (and by we I mean all cultures and colours) can create wealth for ourselves, all we need is the freedom to do so.

Schifferes old fellow if SA only contract by 4 % in 2021 it will be a miracle.
The idiots in charge of this country will make absolutely sure that it is at least 10%

Really Steve Schifferes, your first 3 columns, using terms “may not” “could”, is laying the blame for “old” economies lack luster performance on a virus, when in even past articles you have written have noted the malaise gripping Europe and north American economies since the late 20th century
From paragraph 4 onwards, as interesting a read it is, you deviate away from covid for the ills of the mentioned at the start to portray how the global economy is still being push forward by the “locomotive” might of China

To lay blame for “socialist” policies gone horribly wrong in South Africa to even in the “mighty” US where benefits consume more than its military spend and which Europe has too devoured itself with astronomical taxation and low saving on a virus is woefully off the topic at hand and that is civilizations are cyclical

Saying covid has actually benefitted China proves that point

SA will decrease much more than Argentina Q4 19 vs Q4 21. Argentina has already procured vaccines and SA is still thinking about it

The rich will get richer and the poor will get poorer. Nothing different since forever exept the rich are becoming even meaner.

The wealthy make their money from the masses, not from each other. So if per this article half the poor lost their livelihoods…

So the rich must become even meaner.

End of comments.



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