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GLOBAL ECONOMIC OUTLOOK
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According to our latest estimates, global GDP likely contracted by 3.7% in 2020. We expect the global economy to rebound in 2021 by 5.2 percent. A large part of this growth, about 2.6 percentage points, will be driven by the US, China and India. After a relatively slow first quarter, global growth should pick up materially in the second and third quarters, as vaccine distribution allows for the lifting of restrictions on economic activity in the United States, Europe, and later on elsewhere. Continued fiscal and monetary policy support in many economies will provide additional tailwind. Demand for in-person services, which so far has been hit hardest by the pandemic restrictions, will lead the recovery. Industrial output growth which has remained relatively strong should retain its momentum as business investment rises in anticipation of a faster recovery in consumption.
In the medium term, beyond 2023, The Conference Board projects global growth to return to an average annual growth rate of around 2.6 percent. This is close to, but slightly below, previously released projections. This is despite the possibility that the severe contraction induced by the global pandemic leaves a permanent scar on global growth in the long run. Factors that have for a large part driven global growth in the last two decades, including the greater supply of labor and higher investment primarily in buildings and infrastructure, are expected to weaken substantially over the next decade. This will only be partially offset by a shift towards qualitative growth sources, driven by accelerating digital transformation and productivity improvements. This means that the pandemic-induced losses may not be fully recouped in the long run.
Downward risks to a continued recovery have diminished somewhat with the acceleration of vaccination campaigns, particularly in the US, and the passage of the large economic relief package proposed by the new US administration. Nonetheless, new, more infectious variants of the virus may lead to renewed restrictions on activity, especially if vaccines prove to be unable to protect against new variants. Fiscal policy packages may be unwound too quickly, sapping demand and confidence, leading to a deluge of bankruptcies which so far have mostly been averted. This would in turn cause trouble for bank balance sheets, which have stayed in relatively good shape so far due in part to extremely accommodative monetary policy. Furthermore, sovereign debt crises are looming as many emerging markets and developing economies have taken on large debts that may be difficult to service in the future, especially if the recovery is delayed or is slower than expected. Other downside risks include heightened geopolitical tensions, deglobalization, domestication of supply chains, and renewed trade wars. On the other hand, upside risks include more economic stimulus, especially in the US in the form of new infrastructure spending, a faster-than-expected rollout of viable vaccines to broad segments of the population, and a productivity boost from the accelerated adoption of digital technology.
REGIONAL INSIGHTS FOR WHAT’S AHEAD
Following a lull in the recovery over the winter (Q4 2020 and Q1 2021), we expect the US economy to reaccelerate from the second quarter onwards, bringing the overall level of GDP back to January 2020 levels by April 2021 according to our baseline forecast. Overall GDP growth for 2021 is forecasted at 6.0 percent, following a decline of 3.5 percent in 2020. This baseline outlook assumes: a) new cases of COVID-19 peaked in early Q1 21 and many social distancing restrictions are subsequently retracted in Q2 21 and Q3 21; b) COVID-19 vaccinations become broadly available in Q2 21, and are universally available in early Q3 21; c) the $1.9 trillion in fiscal support approved in March is deployed in Q2 21 and Q3 21, and d) robust improvements in labor markets and consumption in Q2 21 and Q3 21.
The recovery momentum in European economies slowed in Q4 2020 and in some, such as Italy and France, economies contracted. As lockdowns are extended in most countries and with a slower than expected vaccine rollout weighing on confidence, first quarter growth is likely to remain subdued. However, growth in the Euro Area should pick up from Q2 onwards, but—unlike the US—most economies are not expected to reach pre-pandemic levels of GDP before early-2022. We expect the pace of vaccination to pick up in most large continental economies so that from July onwards most of the restrictions will be lifted and thereby increasing the pace of the recovery, a couple of months behind the UK.
Adjusting for 2020 base effects, January-February 2021 data indicate softening consumption and investment growth amidst continuing strong industrial production. Strong external demand and rising prices, in part, are driving industrial production. Some overheating may also be in play. Regulators have strongly signaled their intention to taper stimulus and “normalize” monetary and fiscal policy. Monetary and fiscal support will almost certainly decrease from 2020 levels as regulators focus on reducing aggregate leverage and de-risking financial system hazards. This policy shift should see real estate investment growth slow and infrastructure investment growth remain subdued. Exports, however, should remain a powerful economic driver. Assuming that production resumption will be slow and difficult for other competing export countries in the wake of COVID—and given the expected strength of the US recovery—China’s exports should remain strong in the near-term. Eventually, as global production and exporting resumes, China’s recent export share gains will dissipate. Overall, we expect a slowdown in China’s economic recovery that will possibly start in the second half of this year.
The Conference Board expects real GDP to contract by 4.7 percent in 2020 and to rebound by 2.3 percent and 4.1 percent, respectively in 2021 and 2022. With a subdued 2021 oil demand outlook, the non-oil recovery will be the main contributor to growth in 2021. However, this recovery is subject to the magnitude of governments’ support to the private sector and the extent of serious reforms to decouple the economies away from oil production. Countries that have long realized that heavy reliance on oil revenues is not sustainable and are committed to their development plans (to support the non-oil economy) will have a head start in the race towards recovery. Hence, the 2021 economic recovery of the Gulf countries will diverge drastically, with Saudi Arabia, Qatar and the UAE rebounding rather faster than Oman, Bahrain, and Kuwait.
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Chart 1: Quarterly real GDP index: COVID-19 versus global financial crisis of 2008-2009
Notes: Quarterly GDP data for China are based on official data rather than alternative GDP growth data utilized in the Global Economic Outlook and thus overstate the growth trajectory of emerging markets and developing economies.
Source: Global Economic Outlook (April2021)
The Conference Board Global Economic Outlook, 2011-2030
|Real GDP Growth Rates (Average Annual Percent Change)|
|Other Mature Economies||2.7||-2.2||5.1||2.3||2.6|
|All Mature Economies||1.9||-4.7||4.9||1.3||1.6|
|Other Developing Asian Economies||5.0||-3.1||4.8||2.9||4.6|
|Middle East & North Africa||2.8||-2.8||3.3||1.5||2.6|
|Russia, Central Asia and SE Europe||2.8||-1.6||4.5||2.1||2.4|
|Emerging markets and developing economies||3.9||-2.7||5.4||2.5||3.5|
|United States (Adjusted)||2.4||-3.3||6.2||NA||NA|
|India (Fiscal Year)||6.5||-8.0||13.1||NA||NA|
Notes: Chinese data are based on alternative GDP measures, See Harry Wu, China’s Growth and Productivity Performance Debate Revisited—Accounting for China’s Sources of Growth with a New Data Set, The Conference Board, 2014. The data was updated and revised in May 2020 and the historical data series are available through The Conference Board’s Total Economy Database; United States (adjusted) refers to our alternative GDP series for the US which are revised upward as they are based on alternative price deflators for ICT investment goods and services.
Source: The Conference Board Global Economic Outlook (April 2021)