UN Says Financial Markets the Big Winners From Pandemic Spending

(Bloomberg) -- Unprecedented fiscal and monetary support from governments to counter the coronavirus pandemic has failed to boost investment in things like factories and industrial equipment necessary to power job growth, the UN warned.

Instead, the United Nations said in its “World Economic Situation and Prospects” report on Monday, the biggest benefits are flowing to financial markets, pushing share prices higher.

“If you’re holding Amazon stock, of course you’re doing very well right now,” Hamid Rashid, the head of global economic monitoring at the UN, said in a briefing ahead of the report’s release. “But if you’re an average person thinking about what is your job prospect for the next three years, the next five years, they don’t look very good.”

“What we see is a massive increase of financial asset prices, and a growing disconnect between real economic performance and the financial sector performance,” Rashid added.

The report is the latest to signal a widening economic breach as the impact of the pandemic expands, even with vaccine distribution accelerating. Countries from Malaysia to the U.K. tightened virus restrictions in recent weeks, while record daily deaths have been recorded from the U.S. to Indonesia.

Stimulus Bets

Riskier assets that were already rallying on Covid-19 vaccine prospects are getting fresh momentum from bets that Democratic control of the U.S. Senate will spur further fiscal stimulus. President Joe Biden has called for a $1.9 trillion stimulus package -- a proposal that has won little Republican support -- following a $900 billion spending bill which passed Congress last month.

Efforts around the globe to bolster economies resulted in central-bank balance sheets ballooning in 2020, growing to a record for the Federal Reserve and the European Central Bank. Bank of America Corp. expects the Fed balance sheet to reach 42% of U.S. gross domestic product this year.

With growing fiscal deficits, total public debt worldwide increased by about $9.9 trillion in 2020, the UN report said.

“This is the largest increase in public debt since the Second World War,” the authors wrote. “Governments around the world borrowed from the future to minimize the impact of the crisis on the current generation.”

Output in developed economies likely shrank by 5.6% in 2020, with growth projected to recover to 4% in 2021, the UN economists said. Due to less strict virus closures, developing countries experienced a relatively less severe contraction, with output shrinking by 2.5% in 2020. Their economies are projected to grow by 5.7% in 2021, they said.

Annual growth in global trade is forecast at 6.9% in 2021 and 3.7% in 2022, buoyed by a recovery in international travel, according to the report.