Given the prominence of base effects in 2021, the longer term question about the growth trajectory of the global economy is whether the crisis period was in fact used as an opportunity to revamp and adapt the economic system to the new realities of the Covid era, writes Valdai Club Programme Director Yaroslav Lissovolik.
The year 2021 will feature in the economic textbooks as one of the most peculiar in terms of the macroeconomic backdrop observed across the world. The most striking feature was of course record-high inflation in developed economies, with the US and Germany all posting inflation rates of above 5% and well above those targeted in the past years by the Fed and ECB respectively. Another fragility that may reverberate across the global economy in the medium-term is the elevated level of fiscal deficits and the increased debt burden. Overall, while the emphatic recovery in 2021 from the economic decline of the preceding year is welcome, the macroeconomic fragilities remain sizeable and perhaps no less daunting than in the post-2008 financial crisis period.
Given the prominence of base effects in 2021, the longer term question about the growth trajectory of the global economy is whether the crisis period was in fact used as an opportunity to revamp and adapt the economic system to the new realities of the Covid era, writes Valdai Club Programme Director Yaroslav Lissovolik.
The year 2021 will feature in the economic textbooks as one of the most peculiar in terms of the macroeconomic backdrop observed across the world. The most striking feature was of course record-high inflation in developed economies, with the US and Germany all posting inflation rates of above 5% and well above those targeted in the past years by the Fed and ECB respectively. Another fragility that may reverberate across the global economy in the medium-term is the elevated level of fiscal deficits and the increased debt burden. Overall, while the emphatic recovery in 2021 from the economic decline of the preceding year is welcome, the macroeconomic fragilities remain sizeable and perhaps no less daunting than in the post-2008 financial crisis period.
As was the case for the global economy, in Russia the year 2021 was marked by a series of macroeconomic records. Firstly, inflation exceeded 8% and this was the highest inflation rate recorded in the past 5 years. On the economic growth front, Russia’s GDP added more than 4% in real terms, which was the best result in the past 10 years. With the rest of the world still deeply in the negative zone in terms of the fiscal balance in the aftermath of the 2020 downturn, Russia towards the end of 2021 was on course to posting a federal budget surplus. With outlays kept at moderate levels, the size of Russia’s fiscal reserves reached an all-time high – the reserves held in the National Wellbeing Fund as well as the reserves stored in the Federal Treasury and regional budgets exceeded the highs observed before the 2008-2009 financial crisis.
In the sphere of Russia’s economic policy, the reigning paradigm was that of prioritising reserve accumulation and macroeconomic stability at the expense of boosting economic growth. This was most clearly observed in 2020, when Russia’s fiscal stimulus proved to be more moderate than in most of the G20 economies. This was replicated in 2021 as well, with further waves of the pandemic eliciting a relatively moderate fiscal response from Russia. Furthermore, in the face of geopolitical and economic headwinds, Russia’s authorities decided to increase the cap for the National Wellbeing Fund from 7% of GDP to 10% of GDP, thus effectively increasing the scope for further accumulation of reserves rather than spending them to boost growth.
The year 2021 was also emblematic for the degree to which the green/environmental agenda was embraced across the world economy, most notably in all of the main global centres – Europe, the US and China. This was the case in Russia as well, with most of major companies adopting ESG strategies and the authorities committing to achieving net zero emissions target by 2060. The importance of the green agenda for Russia was emphasised on numerous occasions by President Putin, including at the Congress of industrialists in December 2021.
Coming back to the global economy, further waves of the pandemic have dented the economic recovery pattern in 2021, though the US and the EU are on track according to the IMF to post growth rates of 6% and 5% respectively compared to close to 6% for the world economy. Some of the highest growth rates among the largest economies are likely to be demonstrated by the two giants from the Global South – India (9.5%) and China (8%). Given the prominence of base effects in 2021, the longer term question about the growth trajectory of the global economy is whether the crisis period was in fact used as an opportunity to revamp and adapt the economic system to the new realities of the Covid era.
Source: Valdai. Discussion club
