IHS Markit is forecasting that after stalling in early 2021, the global economy should prove resilient as vaccines are deployed and the pandemic subsides.
After a 3.9 percent decline in 2020, world real gross domestic product (GDP) is projected to increase 4.4 percent in 2021 and 4.1 percent in 2022, IHS said in its monthly economic analysis from Sara Johnson, executive director of global economics.
Another wave of the COVID-19 pandemic has disrupted economic activity in early 2021. Global infections and deaths are reaching new highs, while the rollout of vaccines is uneven across geographies. Activity restrictions will stall global real GDP growth in the first quarter, with most of Europe in recession.
“IHS Markit anticipates that new COVID-19 infections will decline in the months ahead as vaccines will become more widely available,” Johnson said. “As lockdowns end, a revival in consumer spending will spark an acceleration in the global economy in the second quarter. World real GDP is projected to surpass its late-2019 pre-pandemic peak in the third quarter of 2021.”
In the United States, a new $900 billion fiscal stimulus will avert a contraction in real GDP in the first quarter, offsetting the drag from a higher winter peak in Covid infections, IHS said. This front-loaded fiscal support will provide a bridge to the second half of the year, when pent-up consumer spending will likely push real GDP growth above a 5 percent annual rate, Johnson forecast.
In Europe, the resurgence of Covid-19 and widespread lockdowns led to a second wave of recessions across most of the continent in late 2020 and early 2021. IHS Markit economists continue to forecast a consumer-led growth spurt from spring 2021 as vaccinations facilitate a reopening of economies.
“A last-minute trade agreement at the close of 2020 averted the tail risks associated with a disorderly United Kingdom exit from the European Union,” Johnson said. “However, the deal does not replicate the frictionless trade that existed previously, and ongoing adjustments to the new arrangements will hinder the UK’s recovery from the pandemic shock.”
China’s real GDP grew 6.5 percent year on year in the fourth quarter, up from 4.9 percent in the third quarter. Growth strengthened broadly across industrial and service sectors.
New local outbreaks of the coronavirus should not derail the expansion, although consumer demand could lose steam, according to IHS. After a cyclical rebound of 7.6 percent in 2021, Johnson expects the Chinese economy to return to the deceleration path that began in 2012, as productivity growth slowed in response to stalled economic reforms.
The recent surge in industrial materials prices is expected to bring a burst of finished goods price inflation by mid-2021, leading to an acceleration in consumer prices, IHS projected. Global consumer price inflation is projected to pick up to 2.3 percent in 2021 and 2.6 percent in 2022 from 2.1 percent in 2020, led by accelerations in the U.S. and other advanced economies.
“If demand proves more resilient than anticipated once the pandemic subsides and commodity prices remain elevated, downstream inflationary pressures would intensify,” Johnson said.
The dollar’s exchange rate is expected to depreciate over the next two years in response to low interest rate spreads, an increase in investor risk tolerance and a widening trade deficit, IHS contended. European Central Bank policy accommodation will limit the extent of further euro appreciation, the Japanese yen will benefit from strengthening exports and relatively low inflation and the Chinese yuan will be supported China’s accelerating economy and comparatively conservative monetary policy.