As global COVID-19 infection rates continue to climb, it is difficult picture a “return to normal” at the moment, but even as the global health crisis continues, the global economy has proven resilient amidst the current pandemic. After a sharp contraction in Q1 2020, global economic activity saw an historic rebound that began in late April/early May, and remains on track to surpass pre-pandemic GDP levels by the end of 2020. This in turn, is helping to set the stage for a strong economic recovery in 2021.
In our 2021 outlook, the global economic recovery that we expect to play out is now entering a new phase, with global GDP expected to grow at 5.15% next year, supported by Emerging Markets and Developed Markets, both growing at 6.05% and 3.92% respectively, during that time.
Looking ahead, our forecast is supported by a few “silver linings” on the horizon. Prominent vaccines against COVID-19, such as the Pfizer/BioNTech vaccine and the Moderna vaccine, are now being administered to an increasing number of members of the public. With such vaccines being rolled out in the first half of 2021, the hope is that most economies can return to a new normal. Furthermore, if the incoming Biden administration can take a more “multilateral” approach to global trade with both trade allies and competitors, global economic risk will take a “backseat” for the first time in almost a year.
Despite this cautiously optimistic view, we can not rule out various ongoing risks, including a delay in the global vaccine roll out, due to unexpected side effects and/or poor supply chain management, as well as unexpected political tensions in the US stemming from President Trump stepping down, and President-elect Biden taking office, in January 2021.
“V for Victory?” – 2021 Global Economic Outlook
As a tumultuous year draws to a close, we take a look at what is in store for the global economy in 2021.
What’s in Store for 2021?
As global COVID-19 infection rates continue to climb, it is difficult picture a “return to normal” at the moment, but even as the global health crisis continues, the global economy has proven resilient amidst the current pandemic. After a sharp contraction in Q1 2020, global economic activity saw an historic rebound that began in late April/early May, and remains on track to surpass pre-pandemic GDP levels by the end of 2020. This in turn, is helping to set the stage for a strong economic recovery in 2021.
In our 2021 outlook, the global economic recovery that we expect to play out is now entering a new phase, with global GDP expected to grow at 5.15% next year, supported by Emerging Markets and Developed Markets, both growing at 6.05% and 3.92% respectively, during that time.
Looking ahead, our forecast is supported by a few “silver linings” on the horizon. Prominent vaccines against COVID-19, such as the Pfizer/BioNTech vaccine and the Moderna vaccine, are now being administered to an increasing number of members of the public. With such vaccines being rolled out in the first half of 2021, the hope is that most economies can return to a new normal. Furthermore, if the incoming Biden administration can take a more “multilateral” approach to global trade with both trade allies and competitors, global economic risk will take a “backseat” for the first time in almost a year.
Despite this cautiously optimistic view, we can not rule out various ongoing risks, including a delay in the global vaccine roll out, due to unexpected side effects and/or poor supply chain management, as well as unexpected political tensions in the US stemming from President Trump stepping down, and President-elect Biden taking office, in January 2021.
Top Economics Catalysts for 2021
Going forward into 2021, we see there are a few key catalysts that we expect to be the main drivers of global economic activity next year: rebound in Emerging Markets, the emergence of inflation, and synchronized global growth.
Emerging Markets Taking the Lead
Emerging Markets have faced various cyclical challenges in recent years, but this time around however, given the current economic climate, things may finally be moving in their favour. Given their favourable COVID-19 dynamics, in relation to their Developed Market peers, many Emerging Market economies are well positioned to be global growth engines in the new year.
Trade-dependent economies, such as China, Taiwan, and South Korea, are already well into their economic recoveries, while domestic demand-oriented economies, such as Brazil and India, have already surpassed their pre-COVID-19 growth levels, and are registering positive year-over-year growth.
We expect this growth momentum to continue well into 2021. Simultaneously, Emerging Markets should benefit from the current economic landscape, including accommodative macroeconomic policies, expansionary monetary policy from both Developed and Emerging Market central banks, widening current account deficits in Developed Markets such as the US, and a weaker US dollar. Given this environment, as stated prior, we expect Emerging Markets as a group to grow at 6.04% in 2021, led by Emerging and Developing Asia, with region expected to grow at 7.98% next year.
The Re-Emergence of Inflation
Similar to years past, every recession leaves its mark on the global economy and financial markets, and the 2020 COVID-19 recession is no exception, with this recession bringing back the return of inflation. Put simply, the pandemic has led to an unprecedented spike in unemployment levels, and policymakers will do whatever it takes to create jobs and return economic activity to pre-COVID levels as quickly as possible, even as global economic output improves. In turn, the stimulative fiscal policies will eventually lead to upward pressure on wages, while expansionary monetary policy will erode purchasing power for many major currencies, both prompting inflation to rise from its historic lows. Therefore we believe that this inflationary regime change will lead to weakness in major currencies such as the US dollar and Euro, and ultimately set the scene for a reflationary environment for the rest of the global economy.
Synchronised Global Growth
Given the current economic and monetary environment, the global economic stage is set for what we believe to be synchronized growth in the second half of 2021. As stated prior, Emerging Markets will be the key driver of global economic growth, followed shortly thereafter by Developed Market economies, as they emerge from their self-imposed winter lockdowns.
In Europe, where many countries began reimposing lockdown measures to stem the second wave of the COVID-19 virus, growth is expected to resume in the region when countries reopen. We expect Europe to grow at 5.15% in 2021, as ongoing fiscal and monetary support should ignite an initial rebound and lead to more robust growth for the region in the later half of 2021.
In the US, the economy has remained resilient through the pandemic for the most part. Average incomes of US households surpassed pre-pandemic levels in September, while consumer spending has almost returned to pre-COVID-19 levels, even after the first round of fiscal support expired. Further, with a new US$900 billion pandemic relief bill being signed soon, this and other factors, suggest that the US economy will see a sustainable economic recovery in 2021, with GDP expected to grow at of 3.08% next year.
In Japan, the Japanese economy is supported by large and effective fiscal and monetary support measures implemented in 2020, as well as a faster recovery from the COVID-19 pandemic, especially in relation to its Developed Market counterparts. Going forward, we expect that fiscal support for the Japanese economy to focus on protecting the domestic business sector, as well as achieving the optimal productive capacity of the economy given the current conditions. Furthermore, we expect the Bank of Japan to continue its unorthodox monetary policy of wandering into negative interest rate policy, in an effort to provide a backstop for the Japanese economy and financial markets. Given this scenario, we expect Japan to grow at 2.32% next year.
Conclusion
As 2020 draws to a close, the global economy has went through a year like no other. As we prepare ourselves for 2021, given our 2021 Global Economic Outlook, the global economy is poised for a much needed rebound in a post-pandemic world.
Global Trade Ideas
“Smooth Sailing Ahead?” – 2021 Investment Strategy Outlook
Related Portfolio Solutions
For clients who are interested in our recommended countries and regions, please refer to our Country and Regional Portfolio Solutions.
For clients who are interested in our recommended sector and industry, please refer to our Sector and Industry Portfolio Solutions.
For clients who are interested in our recommended income recommendations, please refer to our Income Portfolio Solutions.
For clients who are interested in our recommended global macro recommendations, please refer to our Global Macro Portfolio Solutions.
© 2020 Economics Global Inc.
Content Disclaimer
Any views expressed here are those of Economics Global Inc. as of the date of this publication, are based on available information, and are subject to change without notice. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.