A Race to Recovery:

The COVID-19 pandemic and accompanying waves of lockdowns have had many negative repercussions for the global economy, especially with regard to the decline in growth rates, rising levels of inflation, and unprecedented levels of global debt. The most important projected trends for the global economy in the second quarter of 2021 are as follows:

1- Economic recovery will be linked to controlling the pandemic: According to many experts, progress in the second quarter of 2021 is tied to the extent to which the COVID-19 pandemic can be controlled, and oncontinued government support in dealing with the economic and social ramifications of the pandemic. Many countries are struggling to obtain vaccines and administer them effectively in order to curb the spread of the virus. Additionally, Europe has renewed lockdownsfor the third time, which willlimit economic recovery on the continent. There is also a significant gap between advanced international economies which have the ability to obtain vaccines, and other economies which are still encountering many difficulties in the process of rolling out thevaccine, especially in emergingmarkets and developing countries, which will not have widespreadvaccine access before the end of the year.

2- Uneven economic growth in some countries: The increased global production and distribution of the vaccine, in addition to the hugeeconomic recovery package adopted in the US,suggest better prospectsfor global economic recovery at a faster rate during the second quarter of 2021, even if this growth is uneven. Major world economies such as the US, China, and Europe are trying to achieve better rates of short-term economic growth, though if European countries experience a new wave of the pandemic, this will slow rates of economic recovery.

However, in spite of the significant support from countries such as the US and China in achieving a speedy recovery, it is not projected that countries will overcome the negative effects of the pandemic in order to reach levels of sustainable growth, especially given the declining manufacturing and trade sectors,which are key enginesof economic activity. Additionally, many key services that require in-person contact continue to suffer, as a result of ongoing shutdowns and social-distancing measures in many countries.

3- Positive effects of economic stimulus packages: The progress in global vaccine distribution may be a lifeline to restartglobal economic growth more quickly, especially since this rollout is happening at the same time as ongoing government aid to save the economy and businesses that have been suffering from the effects of the pandemic for the past year. Monetary aid from the G20 reached 12.5 trillion dollars by the middle of February 2021, in addition to financial stimulus policies that have kept many businesses alive during shutdowns. However, it is likely that if the pandemic continues, the economy will remain sluggish, especially in countries that are struggling with their vaccination campaigns.

4- Increased defaulting on loans: It is probable that lower interest rates, an increase in non-performing loans, and the erosion of capital margins have led to a higher incidence of defaulting on loans, especially as government income support programs come to an end, while financial constraints and family and private debt rise. It is also expected that financial vulnerabilities will increase as global debt reaches its highest-ever levels, which limits the ability of many countries to addresseconomic recession and structural issues.

5- Probable rise in inflation rates: It is projected that there will be a clear trend towards rising prices due to renewed inflation at the global level, since the prices of industrial mineralshave gone up. There has also been an unprecedented increase in the price of copper to levels not seen for decades, while oil prices have jumped to their highest levels in a year. Additionally, yields on US government bonds have increased, while inflation is projected to rise to the highest levels in seven years, despite the US Federal Reserve’s efforts to prioritize creating more job opportunities.

At the same time, the food price index has also risen for nine consecutive months, according to the UN Food and Agricultural Organization (FAO), while the price of edible grains, oils, and sugar reached the highest levels since 2013. It is also projected that rising oil prices will contribute to higher inflation, which will also slow the speed of economic recovery in developed countries, which depend on oil and gas for multiple sectors of industry.

6- Increasing global demand for oil: It is projected that global demand for oil will increase, as vaccination rates continue to rise around the world, and many economies begin to recover. However, oil prices could still rise in the second quarter of 2021 if OPEC Plus keeps the oil supply below the growing levels of demand. There are some indications that OPEC Plus will do this, since it decided to not increase the production of oil in April 2021, while Saudi Arabia is continuing to voluntarily reduce its production by a million barrels per day.

7- Gradual recovery for oil-producing economies: Given the continued rise of global demand for oil and the increasing prices, it is expected that oil and gas revenues will mitigatesome of the short-term financial problems that oil-producing countries are facing. However, a full recovery for oil prices will remain tied to the course of the pandemic. It could take months or even years of gradual increases in prices until there is a significant improvement in the financial situation of oil-and gas-producing countries.

8- Greater efforts to rein in technology companies: It is expected that the US, Europe, and China will take further steps to rein in technology companies, which aligns with the general trend of government pressure on tech and social media companies regarding their global expansion. Biden appointed a group of anti-Big Tech figures to top positions in the White House and Department of Justice in order to challenge their monopoly. This demonstrates that the US administration will take a strong position against Big Tech. We may see this policy come into greater effect in the second quarter of 2021.

For its part, China will continue efforts to limit the independence of national technology companies in the second part of 2021. According to China’s Fourteenth Five-Year Plan, Beijing will focus on aligning comprehensive growth in the technology sector with its priorities on incorporation, which have become more urgent in light of the escalating US-China technology conflict.

9- Pressure on social media sites: It is also projected that there will be greater pressure on social media sites across the world, especially given governmental efforts to broaden demands to prohibit social media sites from publishing information they consider harmful to their interests. Russia, India, and Turkey have ramped up pressure on social media sites in recent months, while further restrictions will be imposed during the coming year.

It is also likely that the conflict between Facebook and Australia over content licensing will prompt other counties to take stricter measures against media companies. Some countries such as Canada and New Zealand are considering adopting policies that would impose regulations similar to those adopted by Australia.

10- Accelerating economic cooperation between the US and Europe: It is likely that the Biden administration will make serious offers to the European Union and other Western countries in order to alleviate lingering tensions, especially in the sphere of trade. This is part of an effort to reduce tensions caused by the previous administration, and could also open the door to new agreements on issues such as digital taxes, governmental aid, and reforming the WTO. Progress in this area could be slow and could extend until after the second quarter of 2021.

In closing, the US may face pressures to make concessions to the WTO, and to lift tariffs on steel and aluminum. However, this remains less likely, because that would lead to domestic political consequences with regard to US aluminum and steel workers.