The world economy is facing a The beginning of 2021 is more difficult than expected, as coronavirus infections increase and it takes time to implement vaccines.
While global growth is still on track to recover from last year’s recession, it may take longer to explode and not be as healthy as previously predicted. The World Bank already trimmed its forecast to 4% in 2021 and the International Monetary Fund will update its own outlook this week.
GDP forecast for 2021
World Bank expects global economy to grow 4% this year
Source: World Bank
Double-dip recessions are now expected in Japan, the euro area and the United Kingdom as restrictions to contain the spread of the virus are applied. Record cases in the USA are dragging out retail spending and hiring, prompting President Joe Biden’s new government to seek an extra $ 1.9 trillion fiscal stimulus.
Only China achieved a V-shaped recovery after containing the disease early, but even there consumers remain wary of Beijing being partially blocked.
High frequency indicators monitored by Bloomberg Economics point to a worrying start to the year, with advanced economies starting on a weak note and emerging economies diverging.
“This is a reflection of the harsh reality that, given the wide distribution of the vaccine, a return to normality is an unlikely prospect,” said Tom Orlik, chief economist at Bloomberg Economics.
Stumbling in growth
Economic activity has a very slow start to the year
Source: Bloomberg Economics, Google, Moovitapp.com, German Statistical Office, BloombergNEF, Avoid.com, Shoppertrak.com, Opportunity Insights
It is a harsh view that policy makers face, after $ 12 trillion in fiscal support and trillions of impressions of money from the central bank have failed to cement a recovery. The Federal Reserve’s are meeting this week.
Market Optimism
Even as economic prospects darkened over the weeks of 2021, financial markets continued to recover with the stimulus of the optimistic government and the launch of the vaccine will lead to a recovery. Global actions reached a record last week.
It is likely that the gap will appear in comments from global leaders, including Chinese President Xi Jinping, his French counterpart Emmanuel Macron and German Chancellor Angela Merkel and others who will speak at an online event that the World Economic Forum is holding from 25 to 29 January, instead of its meeting usual at the Swiss ski resort of Davos.
USA, Great Britain and European Union are delivering vaccines, setting a scenario where some parts of the world arrive herd immunity while others are left behind, harming the poorest economies.
“Although there is light at the end of the tunnel, there is still a long and difficult road ahead before we leave,” said Erik Nielsen, chief economist at Unicredit SpA. “As long as the pandemic terrorizes part of the world, normality will not be restored in any place.”
The optimistic perspective rests on the authorities obtaining the vaccine on a material scale by mid-year and neutralizing the threat of more transmissible variants of the virus. The continuous provision of monetary policy easy and hope that governments do not withdraw their support prematurely, as some did after the financial crisis, should also help.
Full Steam Ahead
China’s participation in the global economy is expected to grow at a faster pace
Source: IMF, World Bank, McKinsey & Company
Blockades and other restrictions on movement also appear to be having a less damaging economic impact this time than last year, as consumers and businesses have found ways to adapt. And China’s leadership in global recovery shows what is possible after the virus is controlled.
“The first quarter will be worse than we thought,” said Shaun Roache, chief economist for Asia Pacific at S&P Global Ratings in Singapore. “But we see a delayed recovery, not derailed.”