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The global economy has reached an important milestone in the
second quarter of 2021, surpassing the pre-pandemic real GDP peak
attained in the fourth quarter of 2019. The Asia-Pacific region was
first to complete its recovery in late 2020, owing to a resilient
mainland Chinese economy. North America's recovery has coincided
with that of the world; IHS Markit US economists estimate that the
US real GDP reached a new peak in May 2021. Africa and the Middle
East will reach this juncture in the third quarter, and Europe and
Latin America will complete their recoveries in the final quarter
of 2021.
After a 3.5% contraction in 2020, global real GDP is projected
to increase 6.0% in 2021, its strongest advance since 1973. Growth
will continue at a robust 4.6% pace in 2022 before settling to 3.0%
in 2023-25. IHS Markit upwardly revised our forecast by 0.3
percentage point for 2021, reflecting brighter outlooks for the
United States, Europe, Latin America, and mainland China.
As recovery from the COVID-19 recession is completed, the global
economy is moving into the sweet spot of the current expansion.
World real GDP growth is picking up from an annual rate of 1.5%
quarter on quarter (q/q) in the first quarter to rates of 6.0-7.0%
over the remainder of 2021.
As vaccination rates increase and pandemic-related restrictions
are lifted, consumer spending is surging. This is most evident in
the United States, where pent-up demand for travel and all services
involving social interaction is stronger than anticipated. Western
Europe is in the early stages of a growth spurt as economies
reopen, labor market conditions improve and household saving rates
retreat from exceptionally high levels. Business investment is also
picking up in response to more robust sales prospects and favorable
financing conditions. Depleted inventories will be rebuilt,
supporting economic growth in the second half of 2021. Meanwhile,
commodity-exporting countries are benefiting from elevated prices
and a strong resurgence in exports.
COVID-19 virus flare-ups remain a risk to the economic outlook
in places where vaccination rates are lagging. This includes many
emerging and developing countries where vaccine campaigns are just
beginning and will extend into 2022. Parts of Asia have experienced
COVID-19 outbreaks this spring, prompting lockdowns that have
affected consumer spending and exports. Thus, India, Taiwan,
Malaysia, Vietnam, and Japan have experienced setbacks in recent
months but should rebound in the summer quarter. India's daily
infection rate has fallen 80% from its early May peak. Declining
cases will enable Japan to lift states of emergency in all areas
but Okinawa prefecture on 20 June.
Global supply chains are severely disrupted, and rebalancing
will take time. The IHS Markit PMI™ global manufacturing survey
found that supplier delivery times lengthened in May to the
greatest extent in survey history, contributing to the steepest
rise in input costs in over a decade and record inflation in
selling prices. While some of the delays emanate from suppliers in
Asia, manufacturers in Europe and North America are most affected
by delivery delays. With consumer demand expected to grow at a
rapid pace through 2021, transportation delays are likely to
continue into 2022. Semiconductor shortages have also disrupted
several industrial sectors, including automobiles and parts,
household goods and technology equipment. The shortages reflect
sharp declines in exports of electronic components from mainland
China and Taiwan.
Industrial commodity prices are beginning a correction, but
downstream price pressures remain intense. Market forces are
working, as high commodity prices are dampening demand and
incentivizing production. The IHS Markit Materials Price Index
(MPI) has fallen from early May to mid-June, and declines have been
broadly based. Buyers are resisting high prices and mainland China
has announced plans to sell state inventories of industrial metals.
Despite the downturn, the MPI is up 25% year to date and nearly
double its year-earlier level. Some of the increases will be passed
downstream to finished goods prices in the months ahead.
Global consumer price inflation is projected to pick up from
2.1% in 2020 to 3.3% in 2021 before settling back to 2.7% in 2022
as supply conditions improve and commodity prices retreat. Forecast
risks are on the upside and depend on the path of long-term
inflation expectations, as well as monetary and fiscal
policies.
Global economic growth is set to slow in 2022 and 2023. The
post-pandemic economic surge is expected to subside by mid-2022, as
pent-up demand is satisfied and global real GDP growth settles at a
3% annual pace. The withdrawal of fiscal stimulus will become a
drag on growth as governments rein in spending and contend with
higher debt burdens. Government fiscal deficits widened from 3% of
world GDP in 2019 to 10% in 2020 and are expected to narrow to 7%
in 2021 and 4% in 2022. As economies move toward full employment,
transitory inflation pressures could give way to more persistent
inflation pressures. In response to accelerating prices, currency
depreciation and capital flight, central banks in Brazil, Russia,
Ukraine and other emerging markets have already raised interest
rates. In the United States, the eurozone, and other advanced
economies where inflation expectations are well-anchored, monetary
tightening can be delayed in the short term but not
indefinitely.
Posted 21 June 2021 by Sara Johnson, Executive Director – Economic Research, S&P Global Market Intelligence