Analyzing the Global Economic Results from the Second Quarter
It was clear that the economic data released by the world’s leading economies for the second quarter of this year was going to be highly unusual due to the huge economic losses that were incurred during the second quarter of last year as the Covid-19 pandemic caused massive disruptions around the world. Not only did these massive disruptions make forecasting last quarter’s economic results more challenging than normal, but they also ensured that the results from the last quarter would be open for misinterpretation due to their unusual nature. Nevertheless, optimism was high for the second quarter of 2021 as many economies were expected to show that they had, in many ways, offset the losses incurred last year. So far, the results have been mixed, with some key economies beating expectations, but with others falling short.
The United States
The United States economy has rebounded more strongly than most other economies from the impact of the Covid-19 pandemic. Nevertheless, its 12.2% year-on-year GDP growth (6.5% annualized) in the second quarter of this year was lower than had been expected. This was due to sharp declines in government spending and fixed investment in the second quarter, as well as constraints caused by labor shortages and supply chain disruptions.
Now, with the Delta variant of Covid-19 spreading across many areas of the US, there are concerns that the rate of economic growth in the United States might again fall below expected levels in the second half of this year. Despite this, the US economy is still expected to grow much faster than almost any other developed economy this year.
Few regions’ economies have been as badly impacted by the Covid-19 pandemic as Europe’s, with many of that region’s leading economies suffering massive losses since the start of the pandemic. Fortunately, many of those European economies that suffered the largest declines in economic output last year (the United Kingdom, Spain, France, Italy, etc.) were able to record relatively strong recoveries in the second quarter of this year.
On the other hand, Europe’s largest economy, Germany, has shown increasing signs of weakness in recent months. At the same time, many of Europe’s leading economies remain dangerously reliant upon exports and foreign investment to generate growth and these areas continue to be disrupted by the ongoing pandemic, as well as other factors.
Many Asian economies have weathered the crisis caused by the Covid-19 pandemic better than their counterparts in other parts of the world and this trend continued last quarter. China recorded economic growth of 7.9% on a year-on-year basis in the second quarter, although this was slightly below expectations as Covid-19 outbreaks disrupted economic activities in some regions of China during the second quarter.
Elsewhere, South Korea, Taiwan and Hong Kong all recorded strong rates of growth in the second quarter, while the Japanese economy bounced back from its prolonged slump during that period. In fact, the Covid-19 pandemic, while negatively impacting most Asian economies, has nevertheless reinforced the notion that Asia is now the dominant source of economic growth for the global economy.
The Outlook for the Remainder of 2021
Overall, the economic results that have been released so far for the second quarter of 2021 are welcome news for a world in need of a boost. Sure, the global recession caused by the Covid-19 pandemic was severe, but it was not as bad as had initially been feared. Furthermore, the economic recovery from this pandemic has been relatively robust.
Nevertheless, there are still some concerns about the health of the global economy over the remainder of this year. For one, many economies continue to be disrupted by the spread of the Delta variant of Covid-19 and the slow rollout of vaccines against the virus in many parts of the world. At the same time, labor shortages and supply chain disruptions continue to cause problems for many key industries. Likewise, long-term factors such as shrinking working-age populations, sluggish productivity growth and rising opposition to globalization are all threatening to slow economic growth in the coming months and years. As a result, while the global economy has responded relatively well to the impact of the pandemic, it is not out of the woods quite yet.