[The Editors' Verdict]More Jabs, More Jobs

'More jabs, More jobs'

On the 31st of last month (local time), the Organisation for Economic Co-operation and Development (OECD) published its revised Economic Outlook for this year, using this phrase. It emphasized that countries that were able to quickly vaccinate their citizens and effectively control COVID-19 infections would see their economies recover faster.

In fact, in the United States, as vaccination speeds up, employment is recovering rapidly. The U.S. Department of Labor reported that the number of unemployment insurance claims in the third week of May was 406,000, marking the lowest since March 2020 (256,000). This figure was below market expectations (425,000). In April last year, when COVID-19 was rampant in the U.S., unemployment claims reached a staggering 6 million. Once stigmatized as the country with the largest COVID-19 outbreak, the U.S. is now emerging from the pandemic faster than any other country in the world.

Not only the U.S., but Western countries such as the United Kingdom and the European Union (EU), which were once shaken by COVID-19, are showing signs of rapid economic recovery due to the effects of vaccination. Considering this situation, the OECD significantly raised its global economic growth forecast for this year from 4.2% to 5.8%. The OECD expects the global economy to recover to pre-COVID-19 pandemic levels in 2022.

However, the catch is that not all countries follow this path. The trajectory of economic recovery varies greatly depending on the level of vaccine distribution and quarantine control. Countries successful in vaccine distribution will show an upward growth curve, while those that are not will continue to decline. Economists call this phenomenon 'K-polarization.' The OECD is concerned that the already unequal global economy will become even more divided due to COVID-19.

So, what about South Korea? Fortunately, the OECD classified South Korea, along with the U.S., as a country that is successfully overcoming COVID-19. It predicted that the per capita Gross Domestic Product (GDP) of South Korea and the U.S. will recover to COVID-19 levels from the second quarter of this year. South Korea’s previously sluggish vaccination rate is also gaining momentum. If the vaccination effect is added to the existing quarantine effect, the speed of recovery could accelerate even more.

On the other hand, Japan, which must hold the Tokyo Olympics in July, is expected to recover in the third quarter of this year, and Germany, the economic powerhouse of Europe, in the fourth quarter. Argentina is expected to fully emerge from COVID-19 only by the second quarter of 2026.

The U.S. aims to have more than 70% of adults receive at least one vaccine dose by Independence Day, July 4. The day when the U.S. can declare 'independence from COVID-19' is not far off. Along with vaccines, American jobs will return. The Federal Reserve (Fed), which has continued quantitative easing citing sluggish employment, will inevitably lose justification to keep pumping money. With various prices already soaring, analyses suggesting that the U.S. tightening clock is accelerating are gaining traction. Hawkish voices within the Fed are growing louder.

U.S. tightening will be fatal to countries that have not yet fully recovered from COVID-19. There is a risk that K-polarization will deepen. The South Korean economy, which greatly increased debt under low interest rates, could also suffer severe pain. Market interest rates are already stirring before the Fed moves.

Rising interest rates are not just a problem for the private sector. Governments, which have increased debt without hesitation under the pretext of responding to crises, must also prepare. Just because tax revenues have unexpectedly increased with economic recovery does not mean they should start spending recklessly.