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Global real GDP reached a new high in the second quarter of
2021, completing a year-long recovery from the COVID-19 recession.
Western Europe rebounded from its double-dip recession, while the
United States and mainland China sustained robust growth. These
gains offset setbacks in India and parts of Southeast Asia and
Latin America.
While growth momentum is slowing with the spread of the Delta
variant of COVID-19, the global expansion is moving forward. After
a 3.4% decline in 2020, world real GDP is projected to increase
5.7% in 2021 and 4.5% in 2022, led by strong recoveries in consumer
spending and business investment. This month's forecast of global
growth has been revised downward by 0.1 percentage point this year
and 0.2 percentage point in 2022, mostly owing to a less robust
performance in the United States. Global growth will settle to 3.2%
in 2023 as pent-up demands are satisfied, and fiscal and monetary
stimuli are withdrawn.
The resilience of the global economy amid a lingering pandemic
suggests that the world is learning to live with the COVID-19
virus. In North America and Western Europe, which account for
nearly half of world GDP, a return to strict lockdowns that
directly impede economic activity is unlikely. In these regions,
vaccination rates are relatively high and rising, reducing the
risks of severe illness or death. People have confidence that a
resumption of pre-pandemic activities—with some
precautions—is relatively safe. Consumers and businesses have
adapted in ways that allow them to continue to spend and produce,
including online shopping, use of delivery services, work from
home, and new health and safety measures. Thus, the likely response
to a rise in infections is a slight reduction in travel and
activities that involve social interaction. International travel
restrictions may be extended, delaying recoveries in
tourism-dependent areas.
Regions with low vaccination rates face greater risks from the
Delta variant of COVID-19. Outbreaks in Asia Pacific have led to
new containment measures, disrupting production and trade in a
region that accounts for 37% of global merchandise exports. In
contrast, new infections have sharply declined in South America,
facilitating economic recovery and the flow of commodity exports.
In Africa, the spread of the Delta variant could put the region's
health facilities under pressure, but extensive activity
restrictions are unlikely. The economic and social costs would be
too high given the limited fiscal capacity of governments to
provide income support. Risks to developing countries will diminish
in 2022 as vaccine supplies increase through COVAX and the startup
of local production facilities.
The US economic expansion is durable. In the second quarter,
real GDP grew at an annual rate of 6.5% quarter on quarter (q/q).
Strong gains in consumer spending and business fixed investment
were partially offset by declines in residential investment,
federal purchases, inventory investment, and net exports. In the
August forecast, annual real GDP has been lowered 0.5 percentage
point, to 6.1%, in 2021, and 0.6 percentage point, to 4.4%, in
2022. The revisions reflect a lower growth path through the end of
2021, owing to less inventory investment amid supply bottlenecks
and more cautious consumer spending in response to the rise in
COVID-19 infections.
Yet, the US expansion remains on solid footing, driven by
unprecedented fiscal and monetary support, continued release of
pent-up demand, and restocking of depleted inventories. Employment
is surging, and job openings remain at record levels. Near-term
market imbalances will push consumer price inflation up to 4.2% in
2021, before improving supply conditions will reduce it to 2.4% in
2022. The US Federal Reserve is expected to taper its asset
purchases in the months ahead and start raising the federal funds
rate in 2023.
Western Europe's consumer-led growth spurt will continue. The
easing of COVID-19 containment measures, improving labor markets,
and household savings accumulated during the pandemic have
unleashed a surge in consumer spending. Eurozone real GDP increased
2.0% q/q (8.2% annualized) in the second quarter. The IHS Markit
Purchasing Managers' Index (PMI™) series and the European
Commission's business and consumer sentiment survey were generally
upbeat in July, even as a third wave of COVID-19 cases emerged in
parts of the region. The European Central Bank's new policy
framework and forward guidance suggest that monetary policy will
stay highly accommodative. After a 6.4% decline in 2020, eurozone
real GDP is projected to increase 5.0% in 2021, 4.3% in 2022, and
2.1% in 2023.
Mainland China's economic growth is resuming a long-term
slowdown. Although the scale of the COVID-19 outbreaks is
relatively small, the Chinese government's zero tolerance policy
has markedly curtailed economic activities. IHS Markit analysts
expect subpar growth near 5% in the second half of 2021. Should the
economy decelerate sharply, the Chinese government will inject
fiscal and monetary policy stimulus. The country's real GDP growth
is projected to slow from 8.5% in 2021 to 5.8% in 2022 and 5.5% in
2023.
Asia Pacific's manufacturing hubs are the current hotspots for
COVID-19. The spread of the Delta variant in the region is
aggravated by the relatively slow progress of vaccination campaigns
outside mainland China. Consumer spending, tourism, industrial
production, and exports have been adversely affected. The IHS
Markit manufacturing PMI™ surveys for July indicated deteriorating
business conditions in Indonesia, Malaysia, Myanmar, Thailand, and
Vietnam, but expansions in other parts of the region. Recent
COVID-19 trends vary, with infections falling in India, Taiwan, and
Indonesia, but rising in Japan, South Korea, Malaysia, the
Philippines, and Vietnam.
Supply chain disruptions and shipping delays persist.
Pandemic-related production cuts in Southeast Asia have exacerbated
input shortages and cost pressures. Semiconductor shortages have
led to more global production cuts in the automotive industry in
August and September. In the container shipping industry, a series
of shocks—the Suez Canal closure in March, partial shutdowns of
Chinese ports, the suspension by Union Pacific on rail shipments
from the West Coast to Chicago in July, and the ongoing backup of
ships off of Los Angeles-Long Beach—have had cumulative
effects, extending delays and driving shipping rates sharply
higher. The Journal of Commerce team in IHS Markit's maritime and
trade group now expects that equilibrium in the container shipping
system will not be fully restored until mid-2022 or later. Some
commodity price pressures are relenting amid softening demand and
buyer resistance; this is seen in falling prices for ferrous metals
and lumber.
Bottom line: While the spread of the Delta
variant of COVID-19 raises forecast risks through supply and demand
channels, it is unlikely to derail the global economic expansion.
The world is learning to live with the virus.
Posted 24 August 2021 by Sara Johnson, Executive Director – Economic Research, S&P Global Market Intelligence