It’s astonishing how quickly things could shift gears in the world we live today. I recall a hot-button debate undertaking the view regarding hazards of the economic growth being witnessed by the United States. The experts mulled over the timeline appropriate enough for the Federal Reserve to taper its Asset Purchase Program and hike the interest rates. I vividly recall the headlines in the paper: Inflationary spiral in the United States, Sturdy inflation here to stay, and the US heading for an overheated economy. However, while many contested the Fed’s decision to delay a hawkish push for a liberal rebound of the economy, a few weighed the possibility of a dampening economic turnaround or a return of the pandemic. Primarily because of how unlikely the scenarios seemed (even to myself) that currently define the reality of the world’s largest economy. This reality is baffling. As simple as that.
As both the Trump regime and the Biden administration poured stimulus payments into the economy, a popular conception was that the growth was inevitable. Don’t get me wrong, it sure was! When I look back a few months ago, the American economy was bustling beyond expectations. Markets raced to register records while the national GDP surpassed the pre-pandemic levels. In March alone, approximately 80,000 jobs were created: right around the same time when the trillion-dollar infrastructure bill was posited to Congress. The labor productively pivoted the economy to maintain an above 6% growth rate – up from an average 2.3% growth sustained by the US economy since 2010. Clearly, the economy was booming at an acceleration hardly anyone precedented.
Many economists urged the Fed to consider a contractionary shift in the next FOMC meeting: following through with the hawkish cues given by Fed Chairman Jerome Powell. However, the Fed maintained its vague approach of monitoring inflation while allowing a liberal hand to the economy. Yields on the T-note – US Government’s 10-year security – surged past the pre-pandemic records as inflation peaked way beyond the conservative level of 2%. The sentiments clearly implied that people were interested in spending just like the Fed anticipated and the US government tried to enable. Everything seemed on track.
Then came the summers and the supply bottlenecks contributed more to the price surge as wages nudged higher along with the inflating cost of raw material. The Federal Reserve again played its prerogative over inflation, deeming the supply constraints to resolve overtime while workers to join the economy once the stimulus payments evaporated. Things seemed simple enough; let me put it this way – the Fed seemed deft enough to handle the uncertainty. The economy continued to perform well despite a deficit of 6.8 million workers from the January 2020 levels of the labor force. The Fed again reiterated its mantra of ‘Transitory inflation’ debunking the theories of a meltdown and delaying a drawback from its QE program. Apparently, it appeared that the economists were adept while the conviction in their beliefs made it harder to oppose their perspective to allow a breather before the screws were tightened to stymie the unwanted inflation. Even I presumed that this revival from history’s shortest recession would be etched in golden words. I almost believed that we witnessed a financial marvel through policies complex to be comprehended by a naïve. How wrong were we!
Till the delta variant remained a far-fetched threat for the United States, the main concern was inflation and a stunted march towards full employment. Restaurants opened while back-to-office slogans deluged social media. Employers enticed workers through high wages as unemployment benefits expired. Mask mandates were lifted as the country braced to welcome normality. It felt like the Fed peeked into the future somehow as the roadmap towards prosperity panned out exactly as predicted. The delta variant upended the plan entirely.
Several states have now delayed the plans to reopen schools and offices as the virus resurges. States like Texas and Florida are inundated by the caseload as hospitals are unable to facilitate the whelming infected citizens. The CDC advisory has taken a reluctant step back to recommend masks and testing to even the fully inoculated citizens. The worst part is the breakthrough infections that have instilled a fear that receded months ago as vaccination drives appear to be more futile than ever: despite reassurances by the officials that once claimed confidence in the tensile defense of the vaccines earlier. Naturally, the demand is relapsing as worry coupled with uncertainty now reigns the streets of the United States.
Moreover, the supply channels have regressed further as major logistic stakeholders including Vietnam, Japan, and Indonesia are similarly grappling with the unprecedented surge of the variant. How easily we touted that the supply chain struggles would resolve by the end of 2021 and how redundantly we just assumed that the worst was past.
Hurting the US growth from another front is the dwindling Federal stimulus. As stimulus payments expire, so does the fervor shown in consumer spending over the last few months. Reports estimate that while the deteriorating supply chain networks fuelled the producer prices twice beyond the forecasted levels for July, the consumer prices inflated only by 0.5% from June to July. It clearly signifies that the artificial support is fading which would eventually plunge the consumer demand in the following months, ultimately impeding the racing growth of the economy. Furthermore, even the T-note yields collapsed from March highs of 1.75% to as low as 1.13% earlier this month (Bond prices are inversely promotional to yields). This implies that not only consumers, but American investors are turning cautious of a possible meltdown that was played lightly by the Fed and is only now erupting as investors seek safe bets amidst an uncertain growth prospect of both the US and the global economy.
Rental evictions are on the rise as 1.4 million Americans expect to be evicted in the following months despite a last-minute approval of the Federal Moratorium. Apparently, the states are liberal to interpret the pandemic as they may while the federal government has its hands full. National savings are plummeting fast as negative Real interest rates are eating away the savings while growth is shrouded in a mist of uncertainty. Simply put, despite an inflating economy, the consumers are forced to park their savings in low-paying bonds like the T-notes (a possible reason why bond prices are rising and yields are subsequently falling). Some are resorting to head to stock markets to avoid punny gains in the fixed income market. The surging traffic is a possible reason for a record increase in indices like the S&P 500. In short, the superfluous growth in the equities market, a price increase in the consumer market, and nosediving yields in the bond market, all by no means imply a progressive economy but a regress towards a downfall.
Nonetheless, I still believe that the Fed would be able to pull the US out of the pit that is forming, I still believe that the Democrat regime is ingenious enough to push the stimulus pockets a little deeper, and I still believe that the US markets are sturdy enough to resist another bout of a brief recession. Yet, I don’t blindly believe in a magical spell to correct the fall in a fortnight. I expect a more mature response in contrast to a popular push towards a hawkish policy. I only wonder in hindsight: What would have happened if the Fed heeded the popular opinion and tapered early? Surely it would’ve added oil to the fire of pessimism that currently grips the American economy.
The Covid After-Effects and the Looming Skills Shortage
The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.
The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.
In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.
In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.
The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.
From our partner RIAC
Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery
Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.
Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.
I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.
In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.
Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.
However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people. The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.
Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.
As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.
For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.
Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.
Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.
This op-ed first appeared in The Nation, via World Bank
An Airplane Dilemma: Convenience Versus Environment
Mr. President: There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior. For example, the decline in the use of automobiles has been to the benefit of the environment. A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.
Yet there is hope. We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort. Such is also the belief of aircraft operators. Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.
In short, the need for passenger planes has diminished while cargo operators face increased demand. Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation. All of which has led to a new business with new jobs — converting passenger aircraft for cargo use. It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.
After the seats and interior fittings have been removed, the cabin floor has to be strengthened. The side windows are plugged and smoothed out. A cargo door is cut out and the existing emergency doors are deactivated and sealed. Also a new crew entry door has to be cut-out and installed.
A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space. A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.
The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics. At the end of it all, we have a cargo jet. If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.
Airline losses have been extraordinary. Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues. This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.
For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes. The latter also requires obtaining regulatory approvals.
A promising development for the future is sustainable aviation fuel (SAP). Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.
It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing. The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth. All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.
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