An optimistic sign

The United Nations Department of Economic and Social Affairs (DESA) recently released its World Economic Situation and Prospects (WESP) mid-2021 report, which raised its forecast for global economic growth thanks to the strong recovery of the two main “locomotives”, the US and China. The world economic picture has seen optimistic signs, but still needs to be cautious about its vulnerability to the impact of the pandemic.

Containers and lorries are seen at the Yangshan Deep Water Port in Shanghai, China, October 19, 2020. (Photo: Reuters)
Containers and lorries are seen at the Yangshan Deep Water Port in Shanghai, China, October 19, 2020. (Photo: Reuters)

The impressive growth of the two leading economies despite the pandemic has had a positive impact on world economic growth. China’s economy is recovering after the country controlled the epidemic well. The Chinese government has set an economic growth target of more than 6% this year. The US economy in the first quarter of 2021 grew by 6.4% over the same period in 2020, the highest first-quarter growth since 1984. The push from consumer spending and the government’s US$1.9 trillion support package are the main factors that have helped the US economy recover quickly. With this more optimistic assessment of the recovery prospects of the world’s two largest economies, the DESA has raised the growth forecast for China in 2021 from 7.2% to 8.2% and that of the US from 3.4% to 6.2%.

Meanwhile, many other economies in Asia, including Japan and the Republic of Korea (ROK), have also witnessed signs of improvement. The Japanese government said that Japan's exports and production recovered strongly in March. For the first time since August 2018, Japan’s Cabinet Office rated economic indicators at their most optimistic on a five-point scale, after the business conditions index rose 3.2 points from the figure of 93.1 recorded in February. Production of chemical and automotive related industries in Japan increased, with automobile exports increasing significantly. Retailers and wholesalers recorded strong sales, contributing to the improvement in the business index.

The ROK also recorded an increase in its economic indicators in the May Monthly Economic Trends from the Korea Development Institute (KDI). Accordingly, the ROK’s economy showed signs of recovery with a focus on the manufacturing industry. Retail sales, exports and equipment investment all increased, showing the manufacturing industry is on a trend of recovery. Besides this, the service industry also showed signs of recovery after a long period of stagnation. However, the recent sharp increase in the number of new cases is a major risk factor for the ROK economy.

The acceleration of the COVID-19 vaccination campaign in the European Union (EU) has had a positive impact on the EU’s economy. EU countries are seeing a significant economic recovery. The European Commission (EC) has sharply revised its economic growth forecast, in which 19 countries in the Eurozone could reach 4.3% in 2021 and 4.4% in 2022, much higher than the 3.8% forecast in February. The EC also forecast that the economic growth of the 27 EU member states will reach 4.2% this year and 4.4% next year. The “shadow” of COVID-19 is said to be gradually leaving European economies, although the risk of its impact still exists. The EU hopes its EUR750 billion recovery plan will lift the EU out of recession.

Meanwhile, the UK economy also grew more than expected in March, with a growth rate of 2.1%, significantly higher than the 1.3% forecast by analysts. In the context of the country having achieved certain successes from its vaccination campaign and the gradual easing of blockade measures, analysts say the UK economy is gradually recovering.

With optimistic signals from the world’s leading and emerging economies, the DESA has adjusted its growth forecast for the world economy in 2021 to 5.4% instead of the 4.7% laid out in January. This is a significant increase in the context that in 2020, world economic growth decreased by 3.6%. However, there are still many potential risks that threaten the prospects of global recovery as the COVID-19 epidemic is still complicated and vaccination campaigns in many countries are still slow. Inequalities in vaccine distribution are posing the risk of an uneven and vulnerable recovery in the global economy. With the dangers of the pandemic expected to last, as well as limited financial room, the most vulnerable countries in South Asia, sub-Saharan Africa, Latin America, and the Caribbean are facing the prospect of an unprecedented recession.

The global economic picture is seeing more “bright spots” because major economies are gradually recovering. However, the “shadow” of the pandemic is still having a negative impact on vulnerable economies, threatening to derail the overall recovery, leaving the “health” of the global economy fragile.