‘An Increasingly Bifurcated world’ awaits in 2021: Report

The Economic Intelligence Unit, in its latest report titled Risk Outlook: Plenty to worry about beyond Covid has forecasted global economic growth of 4.2percent year on year in 2021, on the back of an anticipated 4.7pc contraction in global output this year.

However, this number masks enormous regional disparities, said the report, forecasting huge divergence in the speed of recovery for individual economies, based on multiple factors i.e. fiscal space and commitment; monetary policy flexibility; sectoral composition; severity and timing of lockdown measures; export market exposure; and labour market dynamics and demographics.

“This divergence, straddling as it does already inflamed global trade tensions, cements our expectation of an increasingly bifurcated world,” added the report.

However, there are other recurring themes that will shape the growth outlook and the business environment for these markets in the coming years.

The global trade and supply chains are being reshaped; countries are striving to diversify their export markets and jostling to capture redirected manufacturing investment, while companies are concurrently seeking to diversify their supply chains.

Furthermore, the reassessment of the risk versus reward equation—as companies weigh up labour costs, political stability, FDI policy and the benefits of localisation versus specialism—will create new investment hotspots and strengthen some existing investment centres. There will be some limits on supply-chain rebalancing: the benefits of specialisation will be hard for both companies and economies to give up, and companies will also have to accept higher production costs.

Political instability continues to be a threat; joblessness, poverty levels and rising inequality have only been worsened by Covid-19.

The report revealed that many countries are newly prioritising substantial investment in infrastructure. Financing models will vary amid widespread fiscal constraints, but with record-low interest rates in many places helping. Infrastructure investment will be pursued to facilitate job creation and, in some cases, to try to keep the potential for social unrest at bay.

The report was of the view that accelerated vaccine rollout and an unleashing of pentup demand could cause several countries to surge ahead. “Conversely, in other countries the labour market may be severely diminished for an extended period, weighing on post-pandemic demand and creating recovery laggards,” it said.