This will be an important factor in achieving the fastest growth rates in 40 years.
Yelena Ivanova
In the second quarter, the annual forecast for 2021 improved significantly. World GDP growth is expected to be the fastest in 40 years. This year it will be 5.8% . This is half a percent higher than the forecast after the 1st quarter. In 2022, GDP growth is expected at 4.5%. This conclusion was made by the researchers of macroeconomic processes at Euromonitor International based on data obtained primarily from developed countries, where the situation has improved significantly. In 2021, they will give a cumulative increase of 5%, and the next year - 4%, although the long-term trend does not exceed 1.5%. The outlook for developing countries has not changed much and increased by only 0.2-0.3 percentage points, although their growth will be 6.5% this year and 5% next year, with a long-term trend of 4.1%.
The positive outlook for advanced economies is based on US data. With rapid vaccinations and a trillion dollar bailout from the Biden administration, the American economy has become the locomotive of Western countries. In developing countries, strong performances from late 2020 to early 2021 in China, Mexico and Turkey have contributed to the positive development of global GDP. A correction is expected after the second quarter in India. The second wave of the pandemic this spring will reduce the economic performance of this country.
The pandemic continues to be the main factor affecting the global economy in the second quarter due to ongoing lockdowns and social distancing measures in many countries. However, quarantines have become more selective and consumers have adapted to new forms - online shopping has become a ubiquitous form of shopping.
In the 3-4 quarters of this year, there is hope that developed countries will achieve herd immunity. As soon as vaccination reaches the required values, a rapid recovery will begin in sectors of the economy with a high level of social contacts. This growth will be supported by an increase in consumer demand, tax incentives from the authorities and savings that people have experienced during the pandemic.
In developing countries, herd immunity will not be achieved by the end of the year, and this will affect their growth rates.
The greatest risks are also associated with a pandemic. If more dangerous and infectious strains displace current ones, or spread variants that are resistant to existing vaccines, this will negatively affect the economy.
A growth of 6.5% of world GDP is possible provided that the proportion of the infected population does not exceed 5-25%, and the death rate from covid reaches a maximum of 1.3%. The effect of social distance measures should last for a period of 2 to 4 quarters, and the number of global waves of covid will not exceed one or two in six months. The consumption index will return to average values in the third quarter of this year. The stock market should show growth of up to 30%, and discount rates will remain at the average annual values.
USA
In 2020, U.S. GDP fell 3.5% year on year. This year it is expected to grow by 6.5% with inflation of 1.3%. Real gross domestic product growth in the first quarter of 2021 was higher than expected, thanks to measures to support the economy by the Biden administration. This figure was only 1% less than the level of the first quarter of 2019 before the pandemic. In the second quarter, the PMI values will exceed the values of the corresponding 2019.
After a good first quarter, it is hoped that GDP will grow even more - to 6.7% year on year. Then the American economy will exceed the forecasts given by economists for 2022 before the pandemic. This summer, sectors of the economy with a high level of social contacts will fully return to pre-pandemic levels. Data from the Google Mobility Index as of early May show that the number of visitors to shops and places of recreation and entertainment is only 3% less than it was before the pandemic.
China
The Chinese economy grew in the first quarter of this year at an unprecedented rate of 18.3% compared to the first quarter of 2020. This growth reflects the recovery in the economy compared to the start of the pandemic. Industrial production grew by 24.5% compared to the same period, and the service sector - by 15.6%. Global trade began to recover, which is why exports grew by 38.7% compared to the first quarter of 2020.
On an annualized basis, China's GDP is projected at 8.6% in 2021 and 5.5% in 2022. These forecasts are 0.5% below the values predicted by economists before the pandemic.
Beijing did not give a plan for 2021, setting only the minimum allowable growth rate of 6%. This is a good signal for the provinces of China, as local authorities will not chase GDP, but will focus on reducing debt and recovering consumer demand. Fiscal policy will remain softer while reducing the budget deficit.
The EU
The Eurozone economy will grow by 3.9% in 2021 and 2022. Thus, the growth rate in 2022 will be 3% below pre-pandemic forecasts. GDP in Europe did not grow as fast as expected. This is due to the continued quarantine in many European countries, the third wave of coronavirus and the sluggish start of the vaccination campaign in the first quarter. Therefore, GDP contracted by 0.6% compared to the first quarter of 2020, which caused a technical recession in the EU countries.
The first half of 2021 in the EU was determined by an increase in the incidence of covid, which led to a third wave and, as a response, quarantine measures in many European countries. The peak of the third wave fell in Europe in mid-April, after which quarantine measures were only weakened. Following a failed start to the vaccination campaign, the EU has entered into new vaccine deals. Therefore, a way out of the crisis in Europe is expected in the second half of the year. In the 2nd and 3rd quarters, restrictive measures will be lifted, the vaccination campaign will gain momentum. This will help restore the confidence of businesses and citizens who will start spending their savings. Economic growth in the Eurozone will stimulate export growth and support for businesses through EU programs.
Russia
According to the baseline scenario, Russian GDP is expected to grow by 2.8% in 2021. The growth drivers will be the weakening of covid restrictions, an increase in industrial growth, as well as an increase in oil prices. Although the rate of vaccination in Russia is extremely low, the drivers of macroeconomic growth prevail over the factors of the pandemic. The growth itself will begin in the second half of the year.
The Russian economy will reach 2019 indicators in 2022. A decisive role will be played by a package of anti-crisis measures adopted by the government, amounting to 2.6% of GDP. The Central Bank in mid-March raised the interest rate by 50 basis points. The bank stated that high consumption demand provokes inflation in the country, therefore, anti-inflationary measures are needed at an early stage. Economists estimate that the country's inflation rate will not exceed 4% in the coming years.
In general, researchers at Euromonitor International state that the risks from a pandemic to the economy are decreasing with the deployment of a full-fledged vaccination of the population. There is a danger that new strains will become resistant to existing vaccines, and then new ones will have to be developed.
The recession in the EU is technical in nature. Her forecast was associated not only with the fall in the GDP of the Eurozone countries, but also with the threat of Italy's exit from the EU. However, pro-European forces have come to power in the country, and the economic recovery is proceeding at a good pace. Several months of the new American administration in power have shown that a global trade war between the United States and China is unlikely. Despite this, tensions between the two largest economies remain on several fronts, most notably over technology standards, but also over Taiwan.