The new year has started with much optimism, but also with renewed concerns about a strong economic recovery. Trends are uneven due to the flare-up of new infections and uncertainty about the reliability of certain vaccines. Nevertheless, a better year is expected for the global economy after a contraction in real GDP growth of 3.3% in 2020. The IMF’s April 2021 World Economic Outlook (WEO) expects the global economy to grow by 6.0% in 2021 and 4.4% in 2022, up from the previous January 2021 predictions of 5.5% and 4.2%, respectively.
The Euro Area is expected to rebound this year, but at a slower pace. The ongoing high infection rates, the resurgence in new infections, and the reimpose stringent lockdowns weigh on the economic activity in the short term. Inflation has picked up over recent months and market interest rates have increased since the start of 2021. On the other hand, after a slow start, the vaccine rollout is gaining pace and Europe should be on track for economic reopening sometime in the second half of 2021.
- In Germany, rising infection rates and the need to tighten the lockdown restrictions are weighing on the consumer climate and the recovery of the domestic economy will continue to lag due to the third wave
- The Italian economy shrank 8.9% last year and our panel of forecasters expect growth of 4.4% and 4.1%, respectively in 2021 and 2022. Italy’s virus-hit economy is also still experiencing nationwide restriction, but it is expected that lockdown restrictions will be eased soon
- France also experiences a surge in coronavirus cases and the economy is expected to rebound less than previously expected due to the latest four-week nationwide lockdown
The economic recovery in Japan, the rebound in consumer spending and upward foreign demand were cut short by the rise of new infections at the beginning of 2021. It prompted the government to issue another state of emergency for 11 regions, including Tokyo. China’s economic recovery is still strong and is expected to expand by 8.5% in 2021 as economic activity continues to normalize and domestic outbreaks remain under control.
New Zealand and Australia has largely been able to contain the transmission of the coronavirus and the economy is expected to grow at its fastest pace this year since 2007 driven by a massive stimulus.
It is expected that the United States (US) will experience a robust recovery this year and emerges as the main engine for global economic recovery. Unemployment is falling and job creation is increasing Our panel of forecasters expect the US economy to expand by 6.1% this year and slow down again to 3.8% in 2022.
In our latest forecast for the United Kingdom (UK) GDP, our panel expects the economy to grow by 5.1% and 5.5%, respectively in 2021 and 2022. It is expected that the economy will rebound strongly over the second and third quarters of this year as restrictions are eased gradually, supported by the vaccine rollout, increasing consumer confidence and a pickup in manufacturing, construction and wholesale and retail trade.
The degree of economic impact varies greatly by emerging country. The North Asian markets of China, Taiwan and South Korea contained the virus relatively better than its emerging market peers. According to the IMF, unlike after the 2008 crisis, this time it is emerging markets and low-income countries that are expected to suffer greater scarring given their more limited policy space.
In developing Asia, growth is gaining momentum, but the new pandemic outbreaks post a risk to economic recovery. Vaccine rollouts are still in the early stages, and progress varies considerably. According to the Asian Development Bank (ADB), exports, particularly of electronics and products related to the pandemic, such as personal protective equipment, have been an important driver of faster-than-expected recoveries.
India has just started to find its feet and many experts predicted a faster economic recovery. With inflation high and the economy slowly recovering, the Reserve Bank of India, kept the policy interest rate steady at a historically low 4.0%, Our panel forecasts economic activity to rebound by 9.8% in 2021. Unfortunately, the country has been battered with a new extremely dangerous and contagious wave of the virus recently, leading to overloaded hospitals. This could have a devastating effect on economic recovery.
Oil prices: $ per barrel ($/b)
The Brent crude oil prices averaged $65/b in March 2021, up $3/b from February’s average. The price started strong in 2020, averaging $64/b in January, but plummeted in the second quarter, closing at just over $20/b in April 2020. The US Energy Information Administration’s (EIA) forecast that brent crude oil prices will average $65/b in the second quarter of 2021 and $61/b later in the year due to higher demand. Our panel forecasts an average around $60/b for 2021 and 2022.
Source: EDI/EMED & WB
The global economic recovery is expected to gain momentum this year, even though it will be uneven. In both advanced and emerging markets, new virus outbreaks contribute to the risk to derail the economic recovery. Other risks include a delay in the vaccine roll-out, notably due to supply constraints, resulting from shortages of certain components and export restrictions. Much still depends on the race between the virus and vaccines. Looking ahead the pandemic remains the key factor shaping economic developments.