Port Wings, 9 June 2021:
The global economic outlook has improved since the first quarter (Q1) of 2021 with the global real GDP growth this year now expected to be the fastest in more than 40 years at 5.8%, followed by 4.5% growth in 2022, said market research company Euromonitor International (EI) in a new report.
The forecast upgrade is mainly driven by advanced economies, which are now expected to grow by 5% in 2021 and by almost 4% in 2022, compared to the long-term trend growth of 1.5%, EI added in its latest Global Economic Forecasts Q2 2021.
In contrast, developing economies’ real GDP growth rate forecast for 2021–2022 has been raised by just 0.2–0.3 percentage points to 6.5% and 5.0%, compared to the long-term trend of 4.1%.
The strong recovery outlook for advanced economies is mainly driven by the US, due to its relatively fast vaccine deployment and the strong fiscal stimulus measures deployed by President Biden. Faster than expected increases in vaccination rates and a reduction in coronavirus infections in the UK have also led to a major upgrade in UK forecasts.
Among developing economies, the economic outlook has improved in China, Mexico and Turkey, on the back of stronger than expected recoveries at the end of 2020 and early 2021. However, the emergence of a major new pandemic wave in India during spring 2021 is expected to cause an economic contraction in Q2, leading to a significant forecast downgrade.
The Covid-19 pandemic remains a significant constraint on global economic activity in Q2, with ongoing lockdowns and social distancing measures in many countries. However, more targeted lockdowns and greater consumer adaptation, such as online shopping, have reduced the impact of recent lockdowns.
Vaccination rates sufficient for approaching herd immunity are likely to be reached in advanced economies and some developing economies in Q3–Q4 2021. Once mass vaccination is attained, a strong recovery is expected in currently depressed high social contact sectors, supported by rising consumer confidence, fiscal stimulus and high accumulated savings. In contrast, most developing economies are unlikely to reach high vaccination rates before the second half of 2022, delaying their recovery.
India’s economy continued to grow at the beginning of 2021; however, the baseline forecast anticipates an economic contraction in Q2 compared to the previous quarter. The pressure derives from locally-imposed mobility restrictions in light of the escalating health crisis. India’s GDP is expected to return to growth in Q3 2021 under the baseline scenario.
India’s real GDP growth forecast has been revised down for 2021, as the country struggles with rapidly rising numbers of Covid-19 cases during Q2 2021. After a strong economic performance at the end of 2020, India is projected to record 9.4% annual real GDP growth in 2021 and 7.6% in 2022. The baseline forecast probability stands at 61–71% in 2021.
Inflation is picking up and is predicted to reach 5.4% in Q2 2021, compared with 4.3% in Q1, affected by rising prices for food, beverages, clothing and footwear. Consumer price growth is to start gradually subsiding from Q4 2021 onwards. The inflation level will remain within India’s target band, which was confirmed in March 2021 at 4%, with a margin of 2% on either side for the upcoming five years.
Mobility restrictions and weak consumer sentiment are behind elevated unemployment in Q2 2021 (6.2% in the baseline scenario). However, the government is resisting imposing a nationwide lockdown for fear of repeating the negative effect on the economy and employment rates observed in 2020, paving the way for an optimistic outlook for gradually shrinking unemployment in Q3 2021.
A strong recovery is expected in the second half of 2021, backed by the relaxation of social distancing measures in Q2–Q3, accelerating vaccination campaigns, rising private sector confidence and high accumulated savings to spend. Stronger global export demand and fiscal support, mainly from EU recovery programmes, are also expected to boost economic growth. This baseline forecast is assigned a 61–71% probability.