Unequal vaccine distribution has put a stopper in the recovery in parts of the world, adding to supply chain disruptions and slowing growth even in countries protected by higher vaccination rates, says shipping trade organization BIMCO. In a globalized world, no one can return to normal before everyone can.
The world is increasingly divided between countries where high vaccination rates are protecting populations, and thereby protecting the economies, and countries at the other end of the scale where vaccination rates, in some cases, still stand in single-digits. This divide, coupled with the COVID-19 Delta variant, which has increasingly broken through the defenses that kept many countries almost COVID-free, has prompted the International Monetary Fund (IMF) to revise its GDP growth forecast for 2021.
While the headline figure of 6.0% global growth this year is unchanged from the previous IMF forecast, it hides the fact that the growth forecast for advanced economies has been upgraded by 0.5 percentage points to 5.6% and the forecast for emerging economies has been downgraded by 0.4 to 6.3%.
Low vaccination rates and another wave of COVID-19 cases has hindered the economic recovery of many Asian countries as some battle their worst caseloads since the start of the pandemic. A prime example is Vietnam, which until recently had been very successful in its handling of the pandemic. However, the Delta variant and low vaccination rates have led to a rise in infection numbers over the summer and widespread lockdowns as a result.
During the first half of the year, Vietnamese exports were up by 28.4% year-on-year, and industrial production increased by 9.3%. Prior to the effect of the recent lockdowns being felt, the economy grew by 6.6% in Q2 2021 compared with the same quarter in 2020. However, the latest outbreak has forced many factories to shut down, and the manufacturing PMI index indicates month-on-month declines in June, July and August. In August, the overall PMI stood at 40.2, with production experiencing its steepest decline since April 2020. In addition to production taking a hit, transport links have been affected, causing headaches for shipping, in particular container shipping, as ports are forced to operate below capacity.
Similar problems are arising elsewhere in Asia, including China, where a zero-tolerance COVID-19 elimination strategy means that hard lockdowns are difficult to predict and damaging when implemented. As well as targeted lockdowns, which include ports and terminals, new restrictions on domestic travel have been enforced. The number of domestic flights in China dropped by around a half between the end of July and 9 August to 5,785 flights, affecting demand for oil products. By 30 August the number of domestic flights had risen to 8,244 (-31% from January 2020). The number of international flights remains down by 72% compared to January 2020.
In the second quarter of the year, Chinese GDP increased by 7.9% from the same period in 2020, far below the 18.3% recorded in the first quarter of 2021, although this was against a much lower base of Q1 2020. Growth in industrial production in China has also slowed as supply chain woes accumulate. Industrial production grew by 6.4% in July compared with the same month in 2020, the lowest year-on-year increase this year, with accumulated year-on-year growth slowing to 14.9%. This can be explained by the current sluggish recovery overall, as well as a higher base in 2020, when the Chinese economy picked up in Q2 2020.
Also pointing to slowing growth is the manufacturing PMI, which barely rose above the threshold of 50 – which indicates growth – and stood at 50.1 in August. In fact, the rate of growth has now slowed in every month since March. In contrast to the overall PMI, the new export orders index has declined over the past four months. The index registered its sharpest drop of the year in August to 46.7, its lowest level since June 2020.
In the second quarter of the year, GDP in the EU increased by 13.2% from the same period in 2020, an impressive growth rate, but not enough to make up for the 13.6% drop in Q2 2020. Compared with the same period in 2019, the EU’s GDP is still 2.2% weaker today. Similarly, GDP in the Euro Area is down by 2.8% compared with Q2 2019.
Neither the economic bloc, nor any of the five largest economies in the EU, are expected to return to their 2019 strength this year, although the Netherlands, appearing in the top five now that the UK is out, will be just 0.5% smaller this year compared with 2019, according to forecasts by the European Commission. In contrast, economic growth in the EU is forecast to be up 3.0% on 2019 levels in 2022, with Italy being the only one of the top five economies forecast not to record any growth. The Commission forecasts that the country’s economic output in Q4 2022 will be about 1% below its pre-pandemic levels.
Over the summer, the recovery in Europe has been driven by the re-opening of service sectors, as the vaccine roll-out has allowed a gradual re-opening of nations despite the spread of the Delta variant. Working against this positive development, and worrying for shipping, is the fact that problems in production and higher costs are hurting manufacturing. These difficulties include shortages and higher
prices for inputs, transport difficulties as well as staff shortages. This is a complete turnaround from much of last year and the first quarter of this one, when manufacturing and production outperformed services.