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GLOBAL ECONOMIC OUTLOOK
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The global economy is on course to rebound from the pandemic-induced recession in 2021 led by an increasing number of large economies. So far, outsized consumer demand for goods and exports to satisfy that demand have fueled much of the global economic recovery. Importantly, considerable monetary and fiscal policy supports enabled select economies to capitalize on the goods consumption-exports revival more than others.
Still, this mix of growth is unsustainable and likely will give way to a more balanced recovery that includes consumption of in-person services, capital investment, and greater exports from the rest-of-world instead of domination by high-tech and manufacturing hubs in Asia. This rotation is expected to produce global real GDP growth north of 5 percent year-on-year in 2021, and above-trend growth in 2022.
However, there are plenty of pitfalls and roadblocks that may hinder the global economic rebound and expansion. Businesses should be aware of these factors that might curtail return to “normalcy.”
1. First, and likely foremost, is the evolution of the coronavirus itself and the way that governments react to additional waves of infection. Moreover, how quickly governments can vaccinate their populaces to attain herd immunity, a feat that is pivotal to returning to uninhibited economic activity.
2. Second, are frictions in global supply chains and labor markets that are inducing inflationary pressures presently. Those pressures may become so acute that consumers pull back on activity, having negative knock-on effects on business production and investment, and global trade. Moreover, central banks may tighten monetary policy to address elevated inflation rates, which would also slow growth.
3. Third, are government policies that might stop the free flow of people, goods, services, and money across borders. Actions include the indefinite use of international travel bans, industrial policies towards global supply chains, capital controls, and business investment prohibitions in foreign markets.
4. Finally, central banks and governments must carefully unwind the extraordinary amount of stimulus implemented during the worst of the pandemic to mute the effects of the adjacent recession. Removal of accommodation too aggressively stands to thwart the global economic revival, while maintaining easy policies for too long poses financial stability risks.
In the long term, beyond 2023, The Conference Board projects global growth to return to an average annual rate of around 2.6 percent. The severe contraction induced by the global pandemic leaves a permanent scar on global growth in the long run, but global growth is expected to return to close to previous projections. Factors that have for a large part driven global growth in the last two decades, including the greater supply of labor and fast growth in capital stock to worker ratios, are expected to weaken substantially over the next decade. This will only be partially offset by a shift towards qualitative growth sources, driven by accelerating digital transformation and productivity improvements.
REGIONAL INSIGHTS FOR WHAT’S AHEAD
The Conference Board forecasts that US Real GDP growth will rise to 9.0 percent (annualized rate) in Q2 2021 and 6.6 percent (year-over-year) in 2021. Following solid economic growth in Q1 2021 we expect the recovery to continue through the remainder the year. Looking further ahead, we forecast economic growth of 3.8 percent (year-over-year) in 2022 and 2.5 percent (year-over-year) in 2023. The primary driver of this rapid expansion will be a surge in consumer spending as the economy fully reopens. High and increasing vaccination rates and low new COVID-19 case numbers indicate that the reopening process may be complete for much of the country by the end of the summer. The rapid acceleration in growth has led to heightened concerns about rising inflation. We forecast that inflation will peak in Q4 2021 with the price level for personal consumption expenditures (PCE) – the US Federal Reserve’s preferred inflation metric – rising to 4.1 percent (year-over-year) and Core PCE inflation rising to 3.6 percent (year-over-year). Inflation will likely remain elevated into early 2022, but then begin to moderate. It is unclear whether or not the Fed will tolerate these price increases for an extended period of time, and sooner than expected monetary tightening represents a growing downside risk to our forecast.
After contracting by 6.8 percent in 2020, The Conference Board forecasts Euro Area GDP to expand by 4.4 percent in 2021 and 3.7 percent in 2022.As lockdowns were extended in most countries and with a slower-than-expected vaccine rollout weighing on confidence, quarter over quarter growth in the Euro Area declined again in the first quarter of 2021. This brought the common currency bloc into a so-called technical recession, although employment and industrial production (coincident indicators) are above their levels six months ago. However, following the stall, growth in the Euro Area should pick up from Q2 onwards. As the vaccination distribution in continental Europe gathers speed and restrictions are lifted, CEO’s and consumers are becoming increasingly optimistic, judged by a jump in business confidence in May. Inflationary pressures are rising as well, but so far are mostly concentrated in volatile items and in producer prices. It’s unclear to what extent these price pressures will be passed on to consumers, but it is likely that core inflation will increase in the coming months as service sector activity rebounds.
For 2021 The Conference Board expects official GDP growth to come in at 8.6 percent, slowing down to 5.7 percent next year. Exports and real estate investment growth have been driving China’s recovery in 2021. As these two drivers moderate, so too will China’s macroeconomy. Both drivers slowed in May. This makes the outlook for a slower 2H more certain. This said, a ramp up in government bond issuance is possible in the 2H. This could usher in more infrastructure spending to buoy growth. This is a spot to watch. Aside from the aggregate growth, it is worth noting China is making some progress against its industrial plan targets. China “high-tech” industrial investment growth for the first five months of the year is significantly higher than the allindustry average.
Driven to a large extent by a reduction in energy-related GDP, overall GDP declined by 4.7 percent in 2020. For the full year 2021 we again expect a stronger contribution from non-energy related GDP to drive overall GDP growth of 2.5 percent. The Gulf region continue to tackle recurrent COVID-19 waves as governments across the region try to push further the vaccination campaigns and limit travel and access to commercial centers, resorts and schools to vaccinated individuals only in order not to go back to partial and full lockdowns. Consumption of goods and services will continue to support the non-oil sector growth. Governments like Saudi Arabia, and the UAE will push further their diversification agenda and support their private sector, especially given the troubled oil market recovery path. While a decade ago the countries visions converged and moved to create a unified Gulf market and a monetary union, their economic interests have diverged in recent years amid the energy transition and has put the largest two players head-to-head rather than in synergy. The disagreement between the UAE and the OPEC+ members, mainly Saudi Arabia and Russia over baseline production levels has escalated rather quickly beyond the OPEC+ meeting. Saudi Arabia recently announced changes to the GCC tariff agreement, mainly to consider goods that are produced in free trade zones as non-local, a blow to the UAE whose free zones are major drivers of the economy. We expect the impact of this rising tension to remain limited and a middle ground agreement to be reached. OPEC+ members eventually reached a compromise on July 14th where the UAE’s baseline production will be increased to 3.65 mb/d from April 2022 onward.
To access our forecasts in excel format, click here.
Chart 1: Quarterly real GDP index: COVID-19 versus global financial crisis of 2008-2009
Notes: Quarterly GDP data for China are based on official data rather than alternative GDP growth data utilized in the Global Economic Outlook and thus overstate the growth trajectory of emerging markets and developing economies. Source: The Conference Board Global Outlook, July 2021.
The Conference Board Global Economic Outlook, 2011-2030
|Real GDP Growth Rates (Average Annual Percent Change)|
|Other Mature Economies||2.7||-2.2||5.9||2.5||2.6|
|All Mature Economies||1.9||-4.7||5.3||1.6||1.6|
|Other Developing Asian Economies||5.0||-3.1||3.9||2.8||4.6|
|Middle East & North Africa||2.8||-2.7||3.0||1.6||2.6|
|Russia, Central Asia and SE Europe||2.8||-1.5||4.4||1.9||2.4|
|Emerging markets and developing economies||3.9||-2.7||5.3||2.5||3.5|
|United States (Adjusted)||2.4||-3.3||6.8||NA||NA|
|India (Fiscal Year)||6.5||-7.3||9.4||NA||NA|
Notes: Chinese data are based on alternative GDP measures, See Harry Wu, China’s Growth and Productivity Performance Debate Revisited—Accounting for China’s Sources of Growth with a New Data Set, The Conference Board, 2014. The data was updated and revised in May 2020 and the historical data series are available through The Conference Board’s Total Economy Database; United States (adjusted) refers to our alternative GDP series for the US which are revised upward as they are based on alternative price deflators for ICT investment goods and services. Source: The Conference Board Global Economic Outlook, July 2021