The world economy on three cracks

The pandemic has caused a terrifying economic downturn, but now a strange and exciting boom is heating up. The price of oil has skyrocketed, and restaurants and transportation companies have to fight and make various concessions to attract workers. While these companies indicate that profits will reach a historical maximum this year, the index published by JP Morgan Chase and IHS Markit suggests that global growth is the highest since the booming days of 2006, writes "The Economist".

Any escape from the covid-19 crisis is a cause for celebration. However, today's booming economy is also a source of anxiety, as three fault lines or fissures lurk beneath the surface. Together, they will determine who advances and whether this most extraordinary recovery in living memory can be sustained.

The first line of dispersal separates the vaccinated and the unvaccinated. Only those countries that are vaccinated will be able to tame covid-19. This is a condition for shops, bars and offices to reopen permanently, and for customers and employees to have the confidence to leave their homes.

However, only one in four inhabitants worldwide has received the first dose of the vaccine, and only one in eight has been revaccinated and fully protected. Even some US states that have a lower percentage of vaccinated people are vulnerable to the infectious delta variant of the virus.

The second line of divergence runs between supply and demand. A shortage of microchips has hampered the production of electronics and cars just when consumers want to enjoy them. The cost of transporting goods from China to ports on America's West Coast has quadrupled from pre-pandemic levels. Although these bottlenecks are unblocked, newly opened economies will create new imbalances.

In some countries, people seem to prefer going out for a drink at a bar rather than working at a bar, resulting in a labor shortage in the service sector. Real estate prices have risen, which means that rents will soon start to rise as well. This could sustain inflation and deepen feelings of unaffordability.

And the third line of dispersion is created due to the withdrawal of the stimulus. At some point, the state interventions that started last year must be stopped. Central banks from the rich world have bought assets worth more than $10 trillion since the start of the pandemic and are nervously thinking about how to get out without causing a halt in the capital markets by tightening the belt too quickly. China, whose economy did not decline in 2020, is signaling what's to come: it has tightened credit policy this year, slowing growth.

Meanwhile, emergency state aid schemes are starting to expire. Households are unlikely to receive a new infusion of "stimulus" in 2022. Deficits will decrease, which will drag down growth. So far, economies have largely avoided a wave of damaging bankruptcies, but no one knows how well companies will fare when emergency loans come due and workers can no longer be sent on forced vacations at the expense of taxpayers.

You might think that an event as extreme as a pandemic, combined with an unprecedented government response to it, would eventually trigger an equally extreme global economic response. Pessimists worry about the return of 1970s-style inflation, or a financial crash, or that the underlying energy of capitalism will be drained by government handouts. Such apocalyptic outcomes are possible, but not likely.

In 2021, the poorest countries that desperately lack vaccines are projected to grow more slowly than rich countries. Even as covid-19 weakens the recovery, emerging markets face the possibility of higher interest rates. That puts pressure on their currencies as investors buy dollars, increasing the risk of financial instability. Their central banks do not have the luxury of ignoring temporary or imported inflation. The combination of too late vaccination and too early belt tightening will be painful.

Pessimists worry about the return of 1970s-style inflation, or a financial crash, or that the underlying energy of capitalism will be drained by government handouts. Such apocalyptic outcomes are possible, but not likely