How will the delta variant shock global economies? - LEVENT YILMAZ

How will the delta variant shock global economies?

The world has been grappling with the Covid-19 pandemic since March 2020. In addition to its effects on human health, the virus’ impact on economies across the globe continues to be a heavily discussed issue.


DELTA SHOCKS ECONOMIES

It is clear that significant progress has been made in the fight against the Covid-19 pandemic. We cannot ignore how vaccines not only saved lives, but also helped reopen economies. As you all know, the most effective measure at the onset of the fight against the pandemic was to implement restrictions, including curfews, that resulted in shutting down economies. We saw that these restrictions were eased from time to time, depending on the number of cases and deaths. 

However, as cases rise again, restrictions have also made a comeback.

Of course, the most decisive factor in this process of opening and closing economies was the different waves of the pandemic. Just as people everywhere were starting to think that it would become a thing of the past, Covid-19 variants began to make things even more complicated. For example, even the U.S., which is one of the most advanced countries in the field of vaccines, is now contending with its own severe delta outbreaks.


INCREASING INFLATIONARY EXPECTATIONS

Since the start of the pandemic, issues such as restrictions, closure of border crossings, travel bans, production suspension and disruptions in supply chains have been reflected in pricing behavior. These behaviors mainly resulted in inflationary pressure. Then, with the reopening of economies, the increase in demand this time resulted in stronger inflationary pressure, especially for commodities. Of course, governments’ expansionary monetary and fiscal policies that support the economy, which at times included direct income deposits, also played a significant role in this. It seems that as long as Covid-19 and its variants remain on the agenda, inflationary pressure will be here to stay.


SUPPORTING ECONOMIES

The most negative aspect of Covid-19, apart from threatening human life, was the income losses that occurred with restrictions and closures, in addition to the injustices it brought on in income distribution. 

Government policies aimed at supporting the economy helped manage the situation. In fact, the central banks of several countries are maintaining their supportive monetary policies despite high inflation and rising inflationary expectations. In this regard, the attitude of the U.S. Federal Reserve, FED, buys the rest of the world, especially developing economies, some time.

When it comes to global outlooks, there is a perception that the current inflation and increasing inflationary expectations are not only caused by the dynamics of economies but mainly by the conditions exclusively brought on by the pandemic and thus are not expected to be permanent. This is a standpoint that I also support and which should be taken into account in monetary and fiscal policies in the coming period.



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