Macro

The Great Pandemic Divide: rich and poor economies are on diverging paths

Tuesday, June 1, 2021 by Robinhood Snacks | Disclosures

Long weekend on the beach... US air travel over Memorial Day weekend was back to three-quarters of 2019 levels. The US economy is roaring back to life and is expected to grow 6.5% this year, its highest rate since 1984. Other rich countries are also rebounding: China’s economy expanded at a record 18.3% last quarter, and the UK is growing at the fastest rate since WWII. Driving recovery:

  • Vaccines: Wealthy countries poured billions into securing vaccines early for their citizens. In 2020, the US spent $12.4B on Operation Warp speed for vaccine development and delivery. Now half of US adults are fully vaxed.
  • Stimulus: Rich countries were able to afford stimulus programs to support their economies. The US spent a whopping $5T, more than any other country.

While rich countries rebound... poor nations are falling further behind. Covid is surging, economies and health systems are crumbling, and poverty is increasing. The pandemic caused the first rise in extreme poverty since the '90s. Emerging markets are on track to vaccinate less than one-third of their citizens this year, versus 72% for developed nations. In Africa, just 0.4% of the 1.5B population has been fully vaxed.

  • 1.5M: The number of Covid deaths that have already been reported this year will soon surpass the 2020 tally of 1.8M. Latin America, Asia, and Africa account for 72% of deaths.
  • 34M people are on the brink of famine because of the pandemic, a record 35% annual increase, compounded by soaring food prices and weak tourism.
  • 100M: More than half of children in Latin America are out of school, and many are unlikely to return. Globally, 800M+ students don't have access to computers.
THE TAKEAWAY

The Great Divide has long-term implications... Developing economies will take years to recover. Before the pandemic, the gap between the developing and the developed world was narrowing. The pandemic reversed that progress, deepening inequality. While the middle class barely budged in the US and in China, it's shrinking in developing countries. Looking ahead: more than half of low-income economies are at risk of fiscal crises, which could destabilize other regions.