Global Economic Recovery challenges amid new data on lingering pandemics

By: Dan_Steinbock

There is a common denominator between the Chinese holiday season and the COVID fight. That’s the effort to recover the pre-pandemic demand even amid new global waves of variants. There are lessons, too.

Around the world retailers aspire to reinforce sales during major holidays, which have a “multiplier effect” on revenue generation. Such efforts have greater impact when authorities implement additional policy measures to foster consumption.

With the new COVID-19 flare-ups in several cities, including Omicron infections in several Chinese cities, the country’s top economic planner, the NDRC (National Development and Reform Commission) took measures to increase holiday spending and boost the economy during the Spring Festival and the Lantern Festival, along with the Valentine’s Day.

What was the outcome?

From China to US efforts to foster demand

During the peak travel season (chunyun) of the 40-day Spring Festival — the world’s largest human migration — Chinese people were expected to make some 1.2 billion trips (36% increase relative to 2021). About 260 million passenger trips were made during the first 10 days of the festival (46% more than in 2021). Yet, movie box office sales and tourism revenues did not prove as strong as expected.

With air travel increasing by more than 40% during the seven-day holiday, the holiday season did contribute to the sector’s rebounding. As for offline consumption, it increased 29% in Shanghai alone.

Yet, what some Chinese policymakers call the “new post-pandemic normal” is creating challenges worldwide, due to the triple pressure from shrinking demand, supply disruptions and weakening expectations.

In December, US retail sales fell, despite the holiday shopping season. Yet, strong sales by Amazon suggested robust ecommerce potential.

In China, too, Spring Festival online sales have shown strong growth, boosted by ice and snow tourism and the Beijing 2022 Winter Olympic Games, particularly by “Generation Z” born between 1995 and 2009. According to the e-commerce giant JD, the total transaction value of ski sports products soared by 322% year on year in the period.

Early online payment transactions suggest growth of up to 5.3% relative to 2021 (11.6% in terms of value). Meanwhile, China’s gold imports soared 36% year-on-year on the back of the strong recovery in local gold consumption, which is close to the pre-pandemic 2019 level.

Pandemic effects from the West to China and Iceland

International observers often charge China’s zero-COVID strategy for “maximum costs for minimum gains.” Yet, some economists note on the basis of data that China’s strategy actually reflects “minimum costs for maximum gain.” This strategy, they say, helps secure stable global supply chains.

Take, for instance, Apple. Even before the Games, Apple reported record sales beating estimates, thanks to high iPhone demand in China despite supply constraints and Omicron disruptions. And recently, the ANZ, an Australian multinational banking group, reported that China’s COVID policy has a limited impact on the economy since measures are highly localized and targeted.  

When China contained the COVID-19 pandemic in February 2020, the number of total cases worldwide was less than 90,000. Of these, most were in the Chinese mainland. Today, despite a population of 1.4 billion, confirmed cases in China remain less than 110,000. That’s about the same as in Martinique and Iceland, two tiny island states with a population of less than 370,000 each.

By contrast, outside China, the pandemic has caused over 420 million confirmed cases, with over 2 million new cases daily, and nearly 6 million deaths, after four to five pandemic waves and multiple variants.

As a result, world economy has no immediate return to pre-pandemic status quo.

Misguided policies, endemic illusions, lingering COVID costs

Since the global financial crisis, a huge $25 trillion has been pumped into advanced economies via massive fiscal stimulus packages. A protracted pandemic, due to the failure to deliver vaccines and vaccine hesitancy, may further penalize global GDP by a cumulative $5.3 trillion over the next five years.

Through 2025, developing countries are likely to be $12 trillion poorer because of the pandemic. The failure to roll out vaccines will knock another $1.5 trillion from incomes across the Global South. Economic scarring will constrain medium-term performance. Many developing countries are facing 5 to 10 years in missed output.

After containment failures, the West has largely resigned to an “endemic” COVID-19, which is simplistically portrayed as gradual improvement, lower infections, fewer deaths. In reality, the pandemic surges in the West serve as huge population bases for new potential variants. Unlike Omicron, these could prove highly transmissible and more fatal.

Still worse, even if current variants will diminish, the virus’ impact will prove (far) longer-lasting than currently anticipated. Based on the analysis of 11 million U.S. veterans’ health records, a new breakthrough study finds the risk of 20 different heart and vessel maladies substantially increased in those who had COVID-19 one year earlier, compared with those who didn’t. Unsurprisingly, Bill Gates has warned that new variants are coming, likely from a different pathogen.

Recurrent epidemic waves for respiratory transmitted epidemic infections will further penalize the world's most vulnerable economies – in terms of human and economic costs. In such an international environment, what's needed is a “people come first” approach, yet one that can reduce supply disruptions and sustain optimal employment.

In the new status quo, unilateral protectionism, conflict and rearmament will only achieve what they always generate: more poverty, death and devastation. What global leadership requires today is multilateral cooperation, diplomacy and development.

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/  

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