After a pause in the first quarter, the global economic expansion has resumed in the second quarter, lifting output above its pre-pandemic high, Sara Johnson, executive director of global economics at IHS Markit, said in a new report on Thursday.
Johnson noted that recovery from the recession, which saw world real gross domestic product (GDP) fall nearly 10 percent from the fourth quarter of 2019 to the second quarter of 2020, has taken four quarters. Robust growth in the United States and China led the recovery.
After a contraction of 3.5 percent in 2020, global real GDP is projected to increase 5.3 percent in 2021 and 4.3 percent in 2022 before settling to a 3.1 percent growth pace in 2023–25, IHS projected. However, performances will vary across regions, with Asia-Pacific and North America leading and Europe and Latin America lagging.
“Yet, this recovery milestone comes as the World Health Organization reports a record high in weekly incidence of COVID-19 cases in mid-April, underscoring the reality that the pandemic continues to suppress economic activity in many parts of the world,” Johnson said. “About 90 percent of new infections are spread evenly across Europe, Southeast Asia and the Americas. Indeed, new lockdowns of nonessential activity pose a downside risk to India’s outlook.”
Johnson said consumer spending will drive the global expansion. As pandemic-related restrictions are eased and more people are vaccinated, spending on travel, sporting and cultural events, dining out and personal services are expected to revive. In many advanced countries, household finances, on average, have strengthened as a result of fiscal stimulus payments and rising equity and home prices.
A broadening economic recovery, buoyant equity markets, firming output prices, and increased risk tolerance will lead to resilience in capital spending, the report stated. Global real fixed investment is projected to rise 6.2 percent in 2021 and 4.6 percent in 2022, thanks to strong gains in North America and Asia-Pacific.
Global trade and tourism will revive as the pandemic subsides and consumer spending picks up, Johnson said. After a 7.8 percent drop in 2020, global real exports of goods and services are projected to rise 7.1 percent in 2021 and 5.1 percent in 2022. The strongest growth rate in import demand will come from the United States, Asia-Pacific and the Middle East.
IHS Markit economists have raised the forecast of U.S. real GDP growth to 6.2 percent from 5.7 percent in 2021 and to 4.3 percent from 4.1 percent in 2022 in response to strong data on consumer spending, an acceleration in the vaccination campaign and the relaxation of containment measures by many states. This improvement will push real GDP to a new peak in the current quarter and eliminate the gap between potential and actual output in 2022. The previous employment peak will be regained in late 2022 and the unemployment rate is projected to decline to 3.5 percent by mid-2023, IHS forecast.
While several European countries, including Germany, Russia and the Netherlands, will regain pre-pandemic output levels in late 2021, a full recovery will take until late 2022 in the U.K. and France and mid-2023 in Italy and Spain, according to Johnson.
“Signs of a rebound are emerging as vaccination rollouts progress, sentiment improves, and exports and manufacturing post strong gains,” she said.
After an initial surge, China’s economy faces a protracted slowdown. Real GDP growth is projected to pick up from 2.3 percent in 2020 to 7.9 percent in 2021 as momentum shifts from exports and real estate investment to consumer spending and investment in manufacturing, the report said. Growth is forecast to slow to 5.7 percent in 2022, “resuming a downward trend in response to deleveraging, an aging population and diminishing productivity gains,” Johnson said.