Emerging trends of global economic recovery

It is no surprise that most economies continue to struggle as the pandemic is far from over—and that India has been an outlier in terms of its improved performance on Covid. A subsequent paper jointly with Dr Surjit S Bhalla explored several factors that could explain why some states have performed better than others. It was presented at IRADE in December and is available online.

But the underlying point is that economic growth—or the growth recovery process—is contingent on containing the spread of the disease. This is something that has been stated several times over the last few months as experts pressed for interventions with the hope that it will help in containing the spread of the disease. To what extent that occurs is a separate issue as the world must now introspect and focus on the efficacy of some of these interventions.

There is growing evidence to suggest that lockdowns were selectively effective—or that there were other more effective strategies to combat the pandemic. Thus, the world will be a lot wiser with this experience as it will reflect the constraints that are faced by policymakers in the event of imperfect or incomplete information. The developments on the global economic front indicate that across the world, we are witnessing a different kind of economic recovery process for similar sectors related to the services industry. Manufacturing activity, however, has witnessed a faster recovery the world over.

Intuitively, this makes sense as countries that are still experiencing a higher caseload will experience a slower pace of recovery in contrast to others. This again reiterates the point about containing the spread of the virus before being able to ensure swift and complete economic recovery. In the developed world, it is interesting to note that while the United States witnessed swifter recovery of services, Europe and Japan continue to see a decline even though manufacturing activity is recovering across the globe. Many attribute the economic recovery to the extent of policy support that is provided by a particular country; however, these three economies provided a similar set of stimuli.

Therefore, one cannot simply attribute the recovery process solely to the size, scope and type of stimulus.
This point is relevant for India as despite a similar set of policy responses, we are witnessing a different pace of economic recovery within the country and across sectors. Curiously, this recovery is no longer indicating a robust relationship with mobility indices but does seem to be concentrated in areas with lower caseloads. This is why the high cases in Maharashtra and to some extent Kerala must be a cause of concern. At least one of the states was  initially touted as an impressive performer, but for some reason both seem to be lagging behind in the past few months.

Given the high contribution of Maharashtra to overall gross value added in the economy, a high caseload there should be a cause of worry for the overall growth recovery process—more so from the health and life point of view. The emerging trends across the globe are also relevant for India as it too witnesses a different pace of normalisation of economic activity across sectors and states, and perhaps also across districts. A careful review of data across sectors and regions would be needed to identify areas that may need further support going forward.

Karan Bhasin (karanbhasin95@gmail.com)
New Delhi-based economist