Macro commentary by eToro analyst for Romania, Bogdan Maioreanu
We are living in a world that is fighting multiple crises at this time: pandemic, inflation, energy, supply chain, lack of workforce, silicon chips, etc. The International Monetary Fund, in its latest financial stability report, slightly lowered its 2021 global economic growth outlook from its forecast in July as the recovery’s momentum slowed. The IMF warned that the world is recovering at different paces mainly given by “the great divide”, the availability of the Covid vaccine. IMF also mentioned the progresses made by the crypto assets but raised concerns about the risks these can bring to the markets and investors.
The IMF recently forecasted global GDP growth of near 5.9% this year and 4.9% the next. Regardless of the 0.1% decrease from the previous July forecast, the growth is almost double the average over the last decade.
While economic output in advanced economies is expected to get back on its prepandemic trajectory in 2022 and exceed it by 0.9% in 2024, the outlook for emerging and developing economies, outside of China, is far worse, with the IMF expecting aggregate outlook to remain 5.5% below prepandemic forecasts in 2024.
One reason for concern is the divergence in economic outlook on the back of vaccine disparities. Roughly 96% of the population in low-income countries remains unvaccinated, while many advanced economies have almost 60% of their populations fully vaccinated and beginning to get boosters. This is allowing advanced countries to continue the reopening of their economies at levels seen before the pandemic.
While not lacking vaccines, Romania is in the second to last position at vaccination rate in Europe. We are in the middle of the fourth wave with over 15.000 new cases per day and the largest number of Covid 19 deaths in Europe relative to population size. According to the Oxford ‘Stringency’ Index, which measures the degree of lockdowns globally, Romania is at 55, down from the first wave high of 87, but well-away from pre-pandemic zero, putting the continued restrictions as a threat to the economic recovery in the near future.
The IMF expects inflation for advanced and emerging economies to return to pre-pandemic levels by mid-2022. There is an uncertainty created by the labor shortages even as people are out of work. There are ports that can’t unload containers, stores that do not find transport to be supplied with goods, a constant pressure on the availability of maritime transport. Gita Gopinath, the chief economist of IMF stressed in a press briefing the need to be “particularly vigilant to supply-side shocks” so they don’t spark a spiral in wage pressures. “Central banks should be prepared to react quickly if risks become more material in this uncharted recovery,” she said.
IMF: Excessive crypto exposure could destabilize emerging markets
The International Monetary Fund also makes an analysis of the Crypto assets considering that these have evolved to meet varying needs for speculative investment, store of value, currency conversion, and payments. Challenges posed by the crypto ecosystem include operational and financial integrity risks from crypto asset providers, investor protection risks for crypto assets and DeFi, and inadequate reserves and disclosure for some stablecoins.
The IMF is concerned that crypto adoption in some emerging markets and developing economies has outpaced that of advanced economies. One of the biggest risks of crypto in emerging markets is the circumvention of exchange and capital control restrictions. Increased trading of crypto assets in these economies could lead to destabilizing capital flows. IMF urges the policymakers to implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps.
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Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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