By Anjan Roy
A well-respected think tank is projecting the new dynamics in world economy in the year of the pandemics which is going to change the league table standings.
The uppermost is the long anticipated surprise: that the Chinese economy will overtake the US in sheer size following the pandemic which has changed the rates of growth of the respective economies of the two countries. China had managed to grow in 2020 when all other economies were struggling to minimise the extent of contraction.
The other pleasant surprise is that the Indian economy which had witnessed the most spine-chilling contraction of 23.9 per cent contraction in India’s GDP in the first quarter should spring back. The study predicts that India’s should be the third largest economy in the world by 2035.
Japan meanwhile will remain the third largest one between now and 2030 and Germany would continue to dominate though should concede to India in the following years. United Kingdom, which had slipped below India’s, had for a year would again be surpassed by India.
Plenty of other details are there in the report but these are to be expected as a consequence of a black swan event like the pandemic. After all, it is not every year that we witness a global upset of the scale that we have seen this year. These will at the same time are leaving deep imprint.
The long lock-downs in economies across the globe to contain the spread of the virus left economies deeply bruised. But the things that hurt countries were not the ingrained structural flaws in the global economy or some inflexibilities in its workings. The pandemic created situations in which the normal functioning of the economies were impossible.
With the vaccine success established at clinical trials, there is now hope that at long last we are going to see an end of the global disease. It should be over in a while when people will be able to take a deep breathe.
Fighting the virus and limiting the damage to the economies had been a heroic struggle. What are the major side effects of these though. While the virus onslaught and death tolls had given rise to pessimism and desperation, there have been remarkable fresh beginning in the year and could prove to be critical in reshaping the global economy.
All countries big and small had sought to minimise the impact of the lock downs by expanding government spending. The latest and the most eye-popping stimulus package is the US decision to pass a $900 billion fresh one through the US Congress. However, the outgoing president feels this is not good enough and asking for stepping up direct help to every American.
As a result, the debt to GDP ratio of countries have shot up during the year. On some ready estimates, the debt: GDP ratio has shot up by a average of 40 per cent. This is substantial and would pose a problem for the future for the financial system. Banks have lent money, central banks’ balance sheets have ballooned to fund the governments, and the balance sheets of corporates have come under pressure or the weight of additional debts. These imbalances would have to been corrected over time.
At the same time, there is more savings available. It had been observed that people have spent less and savings have increased. Some corporates, particularly, the technology driven ones and those in the strict technology sectors have huge pile of cash with them. These should be available for fresh investment and would seek investment avenues.
Growth prospects are pinned on pent up demand. With the consumers locked indoors, there would be fresh demand for everything from toiletries, to textiles to consumer durables to cars. India for example is already witnessing double digit growth in passenger vehicles sales. Demand for consumer items are booming and these should lead to higher production and investment. Indian manufacturing is also recovering sharply, after a long gap.
One measure of the positive outlook is the way the stock markets across the world are behaving. After sharp and scary falls in March-April, when the lock downs were being imposed across the world, the stock markets recovered fairly soon and currently hovering at historic highs. These levels should encourage companies to raise funds from the market and embark on fresh investments to meet the rising demand. 2021 should be the year of the bourses and IPOs.
The year is also indicating a deeper change in the global economy. There is a higher level of awareness about the climate issues and the role f technology in the future economies. Here are therefore the two concerns which will guide the future: climate change and technology.
Climate change issues have come to the forefront because of the disastrous impact of the covid pandemic and increasing frequency of the extreme climate events. Intense storms and breakaway of the continental ice shelves and rising ocean temperature all are having a direct impact on everyday lives. Climate change is no longer a distant prospect. It is here and hurting.
Fortunately, the change in American leadership at this point should also help. While President Trump was in a climate change denial mood, president elect Biden is known to be aware of climate issues and his appointment o climate change negotiation, talk about America re-joining the arts agreement all bode well for climate change issues.
The change in attitude in this respect has deep economic implications. Today the days of Big Oil are seemingly over and Big Energy is replacing them. Exxon Mobil share value is lower than those of relatively unknown renewable energy companies. Huge investments are lined up in renewable energy sector, than in the traditional oil and gas sectors.
Secondly, we are seeing a huge surge in interest in the technology sector and the global economy would be dominated by these technology behemoths. Tesla, he energy firefly transportation sector biggy has seen appreciation in its share price unheard before. Tesla’s share price has increased in the pandemic year by over 600 per cent. It competitor, a Chinese electric transport many Neo, has seen its share price rise by over 1000 per cent.
Thirdly, the limitations imposed by the pandemic and restricted activities have given rise to inventiveness. If social distancing and norms had to be observed, it gave rise to extensive use of digital facilities. In India digital payments modes have increased.
Even central banks are now a days talking about issuing digital currencies at the same time, because of their rising heft and importance we are hearing of new moves for regulation of the technology sector big players. They have already become behemoths. The effort is to curtail their powers.
These are the latest instances. The Chinese financial technologies company, Ant, has been restrained from making its IPO at the eleventh hour by the Chinese regulators. The issue was slated to be the largest IPO in the world and was being valued at $300 billion. Facebook is similarly under investigation in the USA for concentration of power and restricting competition.
These are developments in an otherwise disastrous year. But these would determine the world that we will see for the next many man years. (IPA Service)