After the contraction of the world economy of 3.3% in 2020, growth of 6% is projected in 2021, which would stand at 4.4% in 2022 and normalize at 3.3% in the medium term. The uptrend in the stock markets outlined from the lows of March 2020 has experienced a deceleration since April 2021. This reflects the uncertainty caused by the new variants of covid-19, in particular the delta, originating in India, which already It accounts for more than 90% of cases in the UK and will be the dominant one in Europe in a few weeks. The tourism industry has been the main affected with significant falls of over 10% in the last week (IAG, Amadeus, Meliá, EasyJet, Lufthansa, KLM …).
Raw materials have taken off spectacularly. A barrel of West Texas crude shows an increase of 51.27% in 2021, a consequence not only of the increase in demand, but also due to the lack of investment and the reduction in OPEC supply as a reaction to the pandemic. At the moment, there are supply choke problems, but there will be long-term adjustment factors when a more balanced global scenario is built.
The International Monetary Fund (IMF) points out that there will not be a generalized recovery if the health crisis is not ended and the World Health Organization (WHO) has set the goal of vaccinating at least 30% of the population in all countries by the end of 2021. There is no doubt that the pandemic is a crisis on a planetary scale and requires global coordination. Some predicted that the pandemic would lead to a more federalist and less globalized geopolitical model, but in reality this crisis shows that the global agenda is now more necessary than ever.
In this crisis there has been a change in economic policy throughout the world with expansionary spending and investment policies, leaving budgetary consolidation for a second stage. Central banks have reinforced monetary expansion trying to stabilize markets and anchor interest rate expectations. Monetary policy has been made more flexible allowing, in the event that inflation temporarily exceeds 2%, it does not imply a change in bias. This would avoid modifying expansionary monetary policies too early in the recovery. In the euro area, the recovery fund implies the mutualisation of debt and allows a structural reduction of the political risk of the Monetary Union.
The rise in year-on-year prices in the US to 5% in May, the highest inflation in the last 13 years, resulted in the unexpected rise in interest rates on June 16 by the Federal Reserve, which also announced that The conditions were already in place to gradually reduce asset purchases. The reaction of the markets was immediate and the stock indices fell.
For the move towards global governance, June has been a very significant month. The meeting of the G-7 countries in Cornwall, under the slogan of rebuilding better, exemplifies the idea of a new form of globalization that puts an end to 30 years of neoliberalism and that aims to be more redistributive. Hence the desire to impose on multinationals a minimum tax of 15% worldwide and, on the other hand, a globalization more committed to the environment. In fact, one of the basic claims has been to put an end to coal in the coming years and gradually to all fossil fuels. The G-7 was also a symbol of union and a declaration of intent regarding the role of China and its expansionist policy.
The approval of the Economic Recovery Plan presented by Spain, of 69,500 million euros in non-reimbursable direct transfers, which could be extended to more than 140,000 in credits until 2026, although conditional on a reform program, implies a change in expectations for the economic situation of our country. In the words of the President of the European Commission, it can respond to Spain’s structural challenges and boost Spanish GDP by 2.5% per year. In fact, the majority of entrepreneurs are more positive and the Bank of Spain has revised upwards its growth forecasts for this year, estimating a 6.2% increase in GDP for 2021.
The arrival of these funds will make it possible to mobilize an unprecedented volume of investment. We have a unique opportunity to modernize and transform our economy. Political and social agents have the responsibility to focus on constructive work that makes this transformative project a reality.
Petra Mateos is a professor of Financial Economics.