Eco wrap: India growth, vax crisis, global debt
Every month, Mint’s Plain Facts section brings out an update on key global economic data to thread together the biggest developments in the world that are worth paying attention to. The accompanying analysis and charts explain how each story is creating ripples on the global stage, where it is headed in the coming weeks, and whether it can impact India. This time, we explain how monetary policies have diverged around the world and why the debt situation has become a reminder of the Napoleonic Wars.
2 Policy Progress
DURING THE pandemic, central banks globally had delivered coordinated interest rate cuts, but are now diverging on their policy response to suit their macroeconomic situation.
Japan recently hiked its interest rate for the first time in 17 years and is now showing an inclination towards more hikes. On the other hand, Sweden has cut its interest rate, breaking a tradition of doing so before the US. The US, which sets the tone for monetary policies around the world, has had a mixed trajectory of signalling rate cuts and status quo in the past few months as its inflation still exceeds the Federal Reserve’s 2% target. The UK has also maintained a status quo but has signalled a rate cut in June, depending on how inflation data plays out. If the UK does so, it would be the first major European country to diverge from the Fed.
The divergence is understandable as these countries are seeing varying degrees of economic growth and inflation.
3 Debt Crisis
EVEN AS the world has recovered from the scars of covid-19, debt levels have remained high, at 111% of GDP in advanced economies and 69% in emerging and developing economies.
This is due to high government spending to support growth and keep food and energy prices in check amid geopolitical tension, with four countries at war currently.
Expressing worry over the high debt levels, Borge Brende, president of the World Economic Forum, told CNBC, “We haven’t seen this kind of debt since the Napoleonic Wars, we are getting close to 100% of the global GDP in debt.”
The elevated level of debt indicates the countries’ inability to rein in their spending amid slow economic growth prospects and persistent inflationary pressures.
According to the International Monetary Fund, “building a credible fiscal framework could guide the process to balance spending needs with debt sustainability”.
4 Dodging Damage
DURING THE pandemic, AstraZeneca’s covid19 vaccine—produced in India by the Serum Institute of India under the brand name Covishield—was deemed safe and was used worldwide. But last month, the company admitted that the vaccine, Vaxzevria, could cause rare blood clots. Two weeks later, on 8 May, it announced that it was withdrawing the jab globally. However, the events did not have much impact on its share price, which rose 0.8% on 9 May and has risen 13.5% this year as the company saw strong profit in the March quarter with strong sales of its cancer drugs.
Despite the withdrawal, which the company has attributed to the “surplus of available updated vaccines”, it continues to face legal troubles from the class action lawsuit involving over 50 cases seeking damages up to 100 million pounds filed in the UK over allegations that the vaccine caused fatalities and severe injuries in numerous instances.
5 Rising Heat
THE SIGNS of global warming are becoming more obvious as temperatures are consistently higher compared to the pre-industrial reference period of 1850-1900.
As per the latest report by Copernicus Climate Change Services, April 2024 was 1.58° Celsius warmer than an estimate of the April average for 1850-1900, making it the hottest April on record. The global average temperature for the past 12 months is also the highest on record, at 1.61° Celsius above the 1850-1900 average. The rising temperature has caused several issues from heatwaves to forest fires to low food production.
India faced heatwaves to severe heatwaves during the month, while countries like Thailand and Mexico also saw extreme weather, as per the World Meteorological Organization. While the effects of the El Nino phenomenon, which leads to low rainfall, are expected to fade this year, the concentration of greenhouse gases will keep pushing the temperature up.