What next for the global economy?
Much about the long-term effects of Covid-19 remains unknown, whether it be on our health or the global economy.
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However, significant progress in the development of vaccines means we’re now able to forecast the economic impact with greater certainty. Indeed, the first effective vaccine will begin to be rolled out across the UK next week.
Though the global economy will grow in 2021, it will remain smaller than its pre-pandemic size at the end of the year, based on the average forecasts from four sources. By the end of 2022 however, the global economy will be almost 4% larger than it was at the end of 2019.
The economies with lighter touch restrictions have fared best during 2020. South Korea, Hong Kong and Sweden were just 3% smaller in the third quarter of this year than they were at the end of 2019. Conversely, the UK and India have been hardest hit so far, with their economies almost 10% and 9% smaller than they were in Q4 2019.
The fresh wave of lockdowns in the fourth quarter of 2020 will likely prompt further contractions, notably across the Euro area and the UK, which are forecast to contract just under 8% and 11% respectively during 2020.
China is the only economy expected to grow this year with an average forecast of +1.4%. This is supported by a strong recovery in consumption and production after the November Purchasing Managers Index (PMI) reached a three-year high of 52.1.
The recovery is likely to be protracted. Below, we chart what has happened to GDP since the end of 2019 and the average forecast growth path to the end of 2022 for major economies. It shows that, by the end of 2021 only China’s economy is expected to have grown beyond its pre-pandemic size. Yet by the end of 2022 Australia, India and the US will also hit this milestone.
However, vaccines could see a sharper uptick as a sense of confidence and normality returns. The OECD noted earlier this week that there would need to be upward revisions with an efficient and effective global rollout. Given that the UK has approved its first vaccine to be rolled out as early as next week we are cautiously optimistic that there will be more upward adjustments and encouraging economic news throughout 2021.
