Global Economic Outlook - February 2021

After a major downturn of the global economy in 2020 caused by the Covid-19 pandemic and despite renewed lockdowns in some parts of the world, there we expect the global economy to rebound in 2021. Several vaccines have been approved and are in the process of being rolled out, allowing for a gradual reversal of lockdown measures. Meanwhile fiscal and monetary support remains essential while countries return to normal economic life. There is considerable uncertainty around our baseline forecast, given the possibility of a delayed recovery, which may occur if there is a stretched wave of global infections. This would significantly reduce GDP growth in 2021 and effectively push the recovery into 2022.

Key points

• As countries gradually emerge from their lockdowns, we expect global GDP to recover by 5.0% in 2021, following a 3.9% contraction in 2020.
• Prospects for global trade in 2021 are good, following a revival of trade growth in the second half of last year. Global trade growth is expected to rebound by 7-8% in 2021, after a contraction of similar size in 2020.
• After economic downturns in 2020, advanced markets as a group see growth rebounding by 3.9% in 2021, after a 5.0% decline in 2020. The pace of recovery deviates, but most advanced markets do not completely recover in 2021 from the GDP contraction they experienced last year.
• In the Eurozone, economies continue to be in relatively strict lockdowns. A partial recovery of 4.2% is likely to occur in 2021 and only in 2022 is activity expected to return to pre-pandemic levels. National governments are expected to continue fiscal stimulus well into 2021.
• The virus poses serious downside risks to the US economy in 2021, but economic growth is forecast to rebound as the rollout of vaccination allows lockdown measures to be gradually reversed. Moreover, the new government reduces policy uncertainty, and a new major stimulus plan for the economy is in the making.
• In Japan, infections were brought under control in the first half of 2020. As a result, the economy is off to a good start in 2021, though it will not fully recover from the recession of last year. If held, the Tokyo Olympics will provide a temporary boost to GDP in 2021.
• Many emerging market economies (EMEs) are still at a critical stage in the health crisis, though there are large differences between countries and regions. Asia is head of the curve in controlling the number of infections. Emerging markets as a group are forecast to grow by 6.3% in 2021, following a 1.9% contraction in 2020.