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Another wave of the COVID-19 pandemic has disrupted economic
activity in early 2021. Global infections and deaths are reaching
new highs, while the rollout of vaccines is uneven across
geographies. Activity restrictions will stall global real GDP
growth in the first quarter, with most of Europe in recession.
We anticipate that new COVID-19 infections will decline in the
months ahead as vaccines will become more widely available. As
lockdowns end, a revival in consumer spending will spark an
acceleration in the global economy in the second quarter. World
real GDP is projected to surpass its late-2019 pre-pandemic peak in
the third quarter of 2021.
In the United States, a new USD900-billion
fiscal stimulus will avert a contraction in real GDP in the first
quarter, offsetting the drag from a higher winter peak in COVID-19
virus infections. This front-loaded fiscal support will provide a
bridge to the second half of the year, when pent-up consumer
spending will likely push real GDP growth above a 5% annual
rate.
The resurgence of COVID-19 and widespread lockdowns led to a
second wave of recessions across most of Europe in
late 2020 and early 2021, albeit less severe than downturns in the
first half of 2020. IHS Markit economists continue to forecast a
consumer-led growth spurt from spring 2021 as vaccinations
facilitate a reopening of economies.
A last-minute trade agreement at the close of 2020 averted the
tail risks associated with a disorderly United
Kingdom exit from the European Union. However, the deal
does not replicate the frictionless trade that existed previously,
and ongoing adjustments to the new arrangements will hinder the
UK's recovery from the pandemic shock.
Mainland China's real GDP grew 6.5% year on
year in the fourth quarter of 2020, up from 4.9% in the third
quarter. Growth strengthened broadly across industrial and service
sectors. New local outbreaks of the COVID-19 virus should not
derail the expansion, although consumer demand could lose steam.
After a cyclical rebound of 7.6% in 2021, the economy will return
to the deceleration path that began in 2012, as productivity growth
slowed in response to stalled economic reforms.
The recent surge in industrial materials prices is expected to
bring a burst of finished goods price inflation by mid-2021,
leading to an acceleration in consumer prices. Global consumer
price inflation is projected to pick up from 2.1% in 2020 to 2.3%
in 2021 and 2.6% in 2022, led by accelerations in the United States
and other advanced economies. If demand proves more resilient than
anticipated once the pandemic subsides and commodity prices remain
elevated, downstream inflationary pressures would intensify.
The US dollar's exchange rate is expected to depreciate over the
next two years in response to low interest rate spreads, an
increase in investor risk tolerance, and a widening trade deficit.
European Central Bank policy accommodation will limit the extent of
further euro appreciation. The Japanese yen will benefit from
strengthening exports and relatively low inflation. The renminbi
will be supported by mainland China's accelerating economy and
comparatively conservative monetary policy.
After stalling in early 2021, the global economy should prove
resilient as vaccines are deployed and the pandemic subsides. After
a 3.9% decline in 2020, world real GDP is projected to increase
4.4% in 2021 and 4.1% in 2022.
Posted 22 January 2021 by Sara Johnson, Executive Director – Economic Research, S&P Global Market Intelligence
