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In 2020, the global economy endured its deepest recession in 74
years, as the COVID-19 virus pandemic upended lives and
livelihoods. The recession was unprecedented in its geographic
scope, the central role of services, and the scale of policy
responses. While the COVID-19 virus will stay with us throughout
2021, the rapid development and deployment of vaccines will enable
a transition to a new post-pandemic economy. Thus, we approach 2021
with a mixture of caution and hope. IHS Markit offers these top-10
economic predictions to help guide your organization's plans for a
momentous new year.
1) While the COVID-19 virus will stay with us, effective
treatments and vaccines will be widely available to large
populations by mid-2021, facilitating a transition to the
post-pandemic economy.
The most ambitious global vaccination campaign ever seen will be
undertaken in the first half of 2021 with around half a dozen
vaccines. The virus itself is very unlikely to go away in 2021 and
there is a risk of periodic, small outbreaks. However, wider
availability of antibody and antiviral treatments, as well as
improved track-and-trace systems will ensure that blunt 2020-style
lockdowns will no longer be needed.
2) The global economy will enter 2021 at a subdued
growth rate and accelerate to a brisk pace in the second
half.
Headwinds to robust near-term growth include COVID-19-related
lockdowns in early 2021, lingering consumer and business caution,
diminishing fiscal support, and the strains of rising public and
private debt. Yet, the reopening of economies and the availability
of vaccines will gradually unleash a new wave of spending on travel
and services. After a 4.2% decline in 2020, global world GDP is
projected to increase about 4.6% in 2021.
3) In 2021, the focus of investors and policymakers will
shift from COVID-19 to the environment.
An important trend in private and public debt markets is the
rise in ESG (Environmental, Social, and Corporate Governance)
issuance, often at slightly lower yields than conventional
equivalents. Another trend is greater use of sustainability-linked
issuance, linking coupons to the achievement of ESG goals. Emphasis
on ESG will exacerbate the financing difficulties of energy and
commodity producers, as new investments are scrutinized for their
ESG contributions.
4) Monetary policies will remain accommodative and more
central banks will lean toward the US Federal Reserve's flexible
average inflation targeting (FAIT) policy.
The Fed's new approach reinforces that its 2% inflation
objective is an average, not a ceiling. The European Central Bank
(ECB) will likely follow the Fed's lead on FAIT when it concludes
its strategy review in mid-2021. Policy rates in the United States,
eurozone, United Kingdom, and Japan will remain near zero well
beyond 2021. In emerging markets, where inflation is a more
immediate concern, monetary easing is ending but policy rate
increases will be rare in 2021.
5) The global financial sector should avoid major crises
in 2021—at least in advanced economies—but banking risks
will rise.
Regulatory reforms that followed the global financial crisis
have yielded substantially larger capital buffers and improved
liquidity conditions across global banks. The lack of widespread
credit booms ahead of the pandemic suggests banks are better
prepared to meet the challenge of rising bankruptcies and high
unemployment rates.
6) Finished goods prices will accelerate in
2021.
Commodity prices rose sharply in the second half of 2020 as
global economy rebounded; these cost increases will be pushed
downstream in supply chains for the next six to nine months,
pressuring margins and leading to higher prices for finished goods
in 2021. Supply-chain disruptions should slowly be resolved. Goods
industries could then see conditions soften even as aggregate
demand strengthens. Iron ore is a notable exception.
7) The US economy will start 2021 slowly and accelerate
in the second half.
The US economy has partially recovered from its worst downturn
since the Great Depression. However, a new wave of COVID-19
infections, the possible re-imposition of lockdowns to contain the
virus, and waning stimulus from pandemic relief measures enacted in
2020 threaten to undermine growth through early 2021. Unexpectedly
rapid progress on vaccines should promote an acceleration in GDP
over the second half of the year.
8) Europe's 2021 annual growth rates will fall short of
market consensus expectations.
After a very weak final quarter of 2020, the COVID-19 virus'
prevalence and related containment measures will continue to hinder
the recovery early in 2021. Lagged increases in business failures
and unemployment will also restrain growth as policy support
diminishes, though we expect a pronounced vaccine-driven pick-up in
eurozone growth rates from mid-year. After an estimated 7.5%
contraction in 2020, eurozone real GDP is projected to rise by
about 3.5% in 2021, with the return to pre-pandemic levels not
expected until late 2022.
9) Mainland China's economy will accelerate to the
strongest growth rate in recent years, but the rebound will
wane.
The expected launch of effective COVID-19 vaccines, pent-up
demand, and a low base effect will help the Chinese economy to grow
7.5% in 2021, its highest rate since 2013. After the cyclical
rebound, the economy will return to the deceleration path that
began in 2012, as productivity growth slowed in response to stalled
economic reforms.
10) The US dollar is expected to weaken in 2021 in a
lagged response to the Fed's sharp pivot to monetary accommodation
in early 2020, an increase in investor risk tolerance, and a
widening trade deficit.
ECB policy accommodation should lean against substantial further
euro appreciation, though expected US dollar weakness and continued
high current account surpluses represent upside euro risk. 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
and while policy convergence will limit exchange rate movements in
the major economies, more currency volatility is expected in
emerging markets.
Posted 16 December 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit and
Gustav Ando, Vice President, Industry Services & Life Sciences, IHS Markit and
Joel Prakken, Chief US Economist and co-head of US Economics, Research Advisory Specialty Solutions, S&P Global Market Intelligence and
Ken Wattret, Vice President, Economics, IHS Markit and
Rajiv Biswas, Executive Director and Asia-Pacific Chief Economist and
Sara Johnson, Executive Director – Economic Research, S&P Global Market Intelligence