Double-dip recessions are now expected in Japan, the euro area and UK as restrictions to curb the virus’s spread are enforced. Record cases in the US are dragging on retail spending and hiring, prompting President Joe Biden’s new administration to seek an extra $1.9 trillion worth of fiscal stimulus.
Only China has managed a V-shaped recovery after containing the disease early, but even there consumers remain wary with Beijing partly locked down.
High frequency indicators tracked by Bloomberg Economics point to a troubling start to the year with advanced economies beginning on a weak note and emerging economies diverging.
“That’s a reflection of the hard reality that, ahead of widespread distribution of the vaccine, a return to normality is an unlikely prospect,” said Tom Orlik, chief economist at Bloomberg Economics.
It’s a stark outlook facing policy makers after $12 trillion worth of fiscal support and trillions in central bank money printing failed to cement a recovery. Those from the Federal Reserve meet this week.
Even as the economic outlook has darkened as the weeks of 2021 ticked by, financial markets have continued to rally on optimism government stimulus and the vaccine roll out will drive a recovery. Global stocks hit an all-time high last week.
The unevenness is likely to feature in remarks by global leaders including Chinese President Xi Jinping, his French counterpart Emmanuel Macron and German Chancellor Angela Merkel and others who will speak at an online event the World Economic Forum is holding from January 25 to January 29 instead of its usual meeting in the Swiss ski resort of Davos.
The US, Britain and European Union are delivering vaccines, setting up a scenario where some parts of the world reach herd immunity while others lag, hurting poorer economies.
“While there is light at the end of the tunnel, there is still a long and difficult road ahead before we are out,” said Erik Nielsen, group chief economist at Unicredit SpA. “So long as the pandemic terrorizes part of the world, normality will not be restored anywhere.”
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