Global reset

The 37-member, EU-dominated, Organisation of Economic Cooperation and Development (OECD) has broadly concurred with the IMF and the World Bank in forecasting a degrowth of 4.2 per cent for the world economy this calendar year, and a recovery of an equal order in 2021, subject to upside and downside risks. The mitigating factor is expected to be the early availability and effective distribution of the vaccine across the world along with “better cooperation between countries”, whereas the risks pertain to resurgence of the virus. The OECD countries are banking on a workable vaccine to beat another major resurgence this winter. The UK, possibly the worst performing economy in this club, has turned out to be the first to actually approve the Pfizer-BioNtech vaccine for public use at the earliest. The OECD has gone along with the Bank and the IMF in expecting the developing world, China and India, in particular, to lead the economic recovery in 2021 and 2022; China is expected to account for one-third of world economic growth in 2021. If China is expected to grow 1.8 per cent this year, 8 per cent in 2021 and 4.9 per cent in 2022, India too has been backed to show a V-shaped recovery, slumping 9.9 per cent in 2020, but rebounding by 7.9 per cent in 2021 and 4.8 per cent in 2022. However, a May paper by Justin Sandefour and Arvind Subramanian argues that — in terms of the stimulus packages on offer, vulnerability to commodity price shocks, reliance on tourism and remittances and a history of debt crisis — the emerging countries are at a disadvantage. They suggest that the numbers are massaged to reduce the prospect of assistance from the richer countries to the rest.

The bigger story of the pandemic is the end of globalisation as we know it; Moody’s has argued that the US, the EU and China will increasingly disengage from each other. India too has pursued import substitution strategies. Whether more than two decades of ‘hyper-globalisation’ leading to a convergence between the developing countries and their richer counterparts has come to a close is a moot point. While the WTO has observed that world trade has been less disrupted than during the global financial crisis (GFC), the fact perhaps is that global value chains will not be the same. This will lead to socio-economic readjustments.

The OECD has warned against austerity, perhaps learning from the GFC experience, arguing that stimulus packages should continue even after vaccines are available. It says: “Extensive fiscal support is pushing public debt levels to record highs, but the cost of debt is at record lows.” This expansionism should help India’s exports. As for the sage advice that the “world cannot solve a global crisis through...inward-looking actions”, the OECD should be compelled by countries such as India to walk the talk and be less protectionist. The convergence of the last few decades should not stop.