The world economy is facing one More difficult start in 2021 than expected, as the coronavirus is on the rise and it takes time to roll out vaccinations.
While global growth is still on track to recover from last year’s recession, it may take longer to kick in and not be as healthy as previously forecast. The World Bank has already cropped it this month forecast to 4% by 2021 and the International Monetary Fund will update its own outlook this week.
2021 GDP forecast
The World Bank predicts that the world economy will grow by 4% this year
Source: World Bank
Double dip recessions are now expected in Japan, the euro area and the UK as restrictions to curb the spread of the virus are maintained. Record cases in the US dragging retail spending and hiring, prompting President Joe Biden’s new administration to seek an additional $ 1.9 trillion in fiscal stimulus.
Only China has managed to achieve a V-shaped recovery after curtailing the disease early, but even there, consumers remain wary as Beijing is partially trapped.
High frequency indicators followed by Bloomberg Economics point to a troubling start to the year, with advanced economies starting weak and emerging economies diverging.
“That reflects the harsh reality that, pending widespread proliferation of the vaccine, a return to normalcy is unlikely,” said Tom Orlik, chief economist at Bloomberg Economics.
Growth stumbles
Economic activity starts the year very slowly
Source: Bloomberg Economics, Google, Moovitapp.com, German Statistical Office, BloombergNEF, Indeed.com, Shoppertrak.com, Opportunity Insights
It’s a grim outlook facing policymakers after $ 12 trillion in fiscal aid and trillions in central bank money pressure failed to bolster a recovery. Those from the Federal Reserve meet this week.
Market optimism
Even as the economic outlook has darkened as the weeks of 2021 passed, financial markets have continued to recover from optimistic government stimulus and vaccine rollouts will spur a recovery. Global equities reached one all-time high last week.
The bumps are likely to occur comments from world leaders including Chinese President Xi Jinping, his French counterpart Emmanuel Macron and German Chancellor Angela Merkel and others who will be speaking at an online event the World Economic Forum will be holding from January 25 to January 29 instead of the usual meeting in the Swiss ski resort Davos.
The US, Britain and the European Union are delivering vaccines and setting a scenario where some parts of the world are reaching herd immunity while others lag behind, harming poorer economies.
“Although there is light at the end of the tunnel, there is still a long and difficult road before we leave,” said Erik Nielsen, group economist at Unicredit SpA. “As long as the pandemic is terrorizing part of the world, normalcy will not be restored anywhere.”
The optimistic outlook rests on the authorities issuing the materially vaccinate mid-year and castrate the threat of more transmissible variants of the virus. The continued supply of easy monetary policy and hope that governments will not prematurely withdraw their support, as some should help after the financial crisis.
Full speed ahead
China’s share of the world economy is expected to grow faster
Source: IMF, World Bank, McKinsey & Company
Lockdowns and other movement restrictions also seem to have less of a negative economic impact this time around than last year as consumers and businesses have found ways to adapt. And China’s lead in the global recovery shows what is possible once the virus is under control.
“The first quarter will be worse than we thought,” said Shaun Roache, Asia Pacific chief economist at S&P Global Ratings in Singapore. “But we see a delayed, undisturbed recovery.”