By the end of this year, the U.S. and Chinese economies are expected to be larger than what they were before COVID-19 spread across the globe and led to an unprecedented fast and sharp depression. It is a remarkable recovery in economic activity even during the ongoing pandemic.
It also is atypical in the global market.
The International Monetary Fund will release its latest World Economic Outlook on Tuesday in the week ahead. The group’s managing director provided a preview in the past week that includes an improving forecast for global economic growth from what the bank forecast just three months ago. But it will be far from full speed ahead.
The faster acceleration is driven primary by the world’s two largest economic engines – China and America – big new government spending plans in the U.S. and expansion of vaccinations in most advanced economies.
However, the IMF worries about a “multi-speed recovery.” It calls the rebound in the American and Chinese GDP’s “the exception, not the rule.” As they often do in times of financial stress, emerging market economies have taken the brunt of the pandemic economic losses. Countries in Latin America and Europe also face slower recoveries as vaccinations have lagged, new virus variants have developed, and restrictions have returned in some places.
One threat of these split fortunes the bank will warn about is higher American interest rates as the U.S. economy picks up steam. The Federal Reserve has pledged to be patient, but the bond market may not wait. Higher U.S. interest rates could suck in foreign money drawing away investments from emerging markets.
The IMF may not be a primary market-moving organization for investors. However, its roots stretch back to the aftermath of the Great Depression as it works toward sustainable economic growth – an interest of any long-term investor.
