Outlook On The World Economy

Outlook On The World Economyl

2020 began with a synchronized deceleration of the world economy as a result of various economic, political, and commercial events that occurred in the previous year. In particular, protectionist policies due to tariff impositions between the United States and China had a negative impact on world trade and, thereafter, on global manufacturing production, with emerging economies being the most vulnerable to external shocks and imbalances.

Although the outlined climate of instability seemed to ease following a pre-trade agreement between the United States and China and, in the Euro Zone, an orderly Brexit negotiation, these expectations were interrupted by the outbreak of the SARS Cov2 virus. This virus, which had its epicenter in the Wuhan, China, region, turned into a global pandemic through the global transit of people and products.

China being the "factory of the world," the lockout in provinces such as Wuhan altered global manufacturing. During the first half of 2020, as a global containment measure, economic activity shutdowns were experienced, firstly in Asia and later in the rest of the world. This had a negative impact on global value chains, affecting the global level of industrial production as measured based on the Purchasing Managers' Index (PMI), an indicator that during April 2020 was below 30 points, in contrast with December 2019 when it was located at 52.7 points.

In this sense, the shock presented in the supply and demand of economic activity, during the months of March to June 2020, altered investment flows and trade patterns worldwide. The dynamism of economies saw sharp falls globally. On the one hand, Foreign Direct Investment (FDI) decreased at an annual rate of 42% to reach 859 billion dollars (BBDD), compared to the 1,539 BBDD registered in 2019, representing the lowest level of the last 30 years; similarly, the FDI was 30% below the figure observed after the 2009 crisis.

The value of world trade fell by 5.3% when compared to 2019, affected by trade in services, particularly by activities related to the tourism sector, where, according to figures from the World Tourism Organization (UNWTO), in 2020, the arrival of international travelers fell by 74% when compared to the previous year, putting at risk between 100 and 120 million direct tourism jobs.

Regarding employment, according to data from the International Labor Organization (ILO), in 2020, the loss of working hours represented the equivalent of 255 million jobs, a figure four times higher than that registered during the financial crisis of 2009. In this context of a synchronized decrease in world trade, the effects on global value chains caused by COVID-19 accelerated the trends of regionalization of trade and production, as well as the adoption of new technologies.

Unlike financial crises such as that of 2008, the 2020 crisis is related to the shutdown of activities around the world, and, to the extent that movement and production restrictions stemming from the pandemic began to be loosened, signs of recovery have been observed. Although at the beginning of the pandemic, a 4.9% drop in world GDP was expected (IMF figure as of June 2020), global economic activity has been recovering and, in April 2021, the IMF predicted that 2020 has ended with a drop of 3.3%. Furthermore, the growth forecasts for the world economy, for the next two years, are at pre-pandemic levels.