Global economy to grow fastest in 40 years in 2021: EI
The global economic outlook has improved since the first quarter (Q1) of 2021 with the global real GDP growth this year now expected to be the fastest in more than 40 years at 5.8%, followed by 4.5% growth in 2022, said market research company Euromonitor International (EI) in a new report.
The forecast upgrade is mainly driven by advanced economies, which are now expected to grow by 5% in 2021 and by almost 4% in 2022, compared to the long-term trend growth of 1.5%, EI added in its latest Global Economic Forecasts Q2 2021.
In contrast, developing economies’ real GDP growth rate forecast for 2021–2022 has been raised by just 0.2–0.3 percentage points to 6.5% and 5.0%, compared to the long-term trend of 4.1%.
The strong recovery outlook for advanced economies is mainly driven by the US, due to its relatively fast vaccine deployment and the strong fiscal stimulus measures deployed by President Biden. Faster than expected increases in vaccination rates and a reduction in coronavirus infections in the UK have also led to a major upgrade in UK forecasts.
Among developing economies, the economic outlook has improved in China, Mexico and Turkey, on the back of stronger than expected recoveries at the end of 2020 and early 2021. However, the emergence of a major new pandemic wave in India during spring 2021 is expected to cause an economic contraction in Q2, leading to a significant forecast downgrade.
The Covid-19 pandemic remains a significant constraint on global economic activity in Q2, with ongoing lockdowns and social distancing measures in many countries. However, more targeted lockdowns and greater consumer adaptation, such as online shopping, have reduced the impact of recent lockdowns.
Vaccination rates sufficient for approaching herd immunity are likely to be reached in advanced economies and some developing economies in Q3–Q4 2021. Once mass vaccination is attained, a strong recovery is expected in currently depressed high social contact sectors, supported by rising consumer confidence, fiscal stimulus and high accumulated savings. In contrast, most developing economies are unlikely to reach high vaccination rates before the second half of 2022, delaying their recovery.
The US economic outlook has continued to improve, due to the large fiscal stimulus implemented by the Biden administration and rapid progress with coronavirus vaccinations.
Real GDP growth in Q1 2021 was better than expected, at an annualised rate of 6.4%. This puts economic activity in Q1 at less than 1% below its level at the end of 2019. Both consumer spending and business investment experienced strong growth, putting them close to end of 2019 levels as well. Economic activity is expected to exceed end of 2019 levels in Q2 2021.
Real GDP is now expected to increase by 6.7% in 2021 (two percentage points higher than the previous Q1 forecast), followed by 4.3% growth in 2022. This would put US economic activity less than 0.4% below the level forecast for 2021 pre-pandemic, rising above the pre-pandemic forecast level in 2022.
At the current pace of US vaccinations, US high social contact sectors should mostly normalise from Covid-19 effects during the summer of 2021. The US Google Mobility report from early May shows movement in retail and recreation sector locations just 3% below pre-pandemic levels, suggesting the sector has already mostly recovered from the pandemic.
Real GDP is now expected to increase by 8.6% in 2021 (0.6 percentage points higher than in the Q1 forecast) and by 5.5% in 2022, leaving 2022 economic output 0.5% below the level forecast before the pandemic. The government has not stated a real GDP growth target for 2021, establishing only a minimum goal of growth above 6%.
This signals a reduction in pressure on local governments to boost growth through potentially unsustainable investment or other artificial means, leaving more room for debt reduction and economic rebalancing to consumption. Fiscal policy is still expected to remain accommodative in 2021, with a moderate reduction in the budget deficit.
India’s economy continued to grow at the beginning of 2021; however, the baseline forecast anticipates an economic contraction in Q2 compared to the previous quarter. The pressure derives from locally-imposed mobility restrictions in light of the escalating health crisis. India’s GDP is expected to return to growth in Q3 2021 under the baseline scenario.
India’s real GDP growth forecast has been revised down for 2021, as the country struggles with rapidly rising numbers of Covid-19 cases during Q2 2021. After a strong economic performance at the end of 2020, India is projected to record 9.4% annual real GDP growth in 2021 and 7.6% in 2022. The baseline forecast probability stands at 61–71% in 2021.
Inflation is picking up and is predicted to reach 5.4% in Q2 2021, compared with 4.3% in Q1, affected by rising prices for food, beverages, clothing and footwear. Consumer price growth is to start gradually subsiding from Q4 2021 onwards. The inflation level will remain within India’s target band, which was confirmed in March 2021 at 4%, with a margin of 2% on either side for the upcoming five years.
Mobility restrictions and weak consumer sentiment are behind elevated unemployment in Q2 2021 (6.2% in the baseline scenario). However, the government is resisting imposing a nationwide lockdown for fear of repeating the negative effect on the economy and employment rates observed in 2020, paving the way for an optimistic outlook for gradually shrinking unemployment in Q3 2021.
European Union (EU)
EU Covid-19 infection rates increased in March, due in large part to the spread of more infectious coronavirus variants, leading to lockdown measures extending in early spring. However, the third Eurozone pandemic wave peaked in mid-April, and lockdown restrictions are gradually being lifted. Earlier vaccine supply bottlenecks have also been solved with new purchase agreements.
A strong recovery is expected in the second half of 2021, backed by the relaxation of social distancing measures in Q2–Q3, accelerating vaccination campaigns, rising private sector confidence and high accumulated savings to spend. Stronger global export demand and fiscal support, mainly from EU recovery programmes, are also expected to boost economic growth. This baseline forecast is assigned a 61–71% probability.