The Forward View – Global: February 2021

Beyond near-term weakness outlook brightens on vaccine roll-out and fiscal support.

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Our podcast series to accompany the NAB Forward View – Global continues, giving you a 10 minute summary of our key forecasts this month.  Listen to the full podcast now.

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Overview

  • The resurgence of COVID-19 in many parts of the world towards the end of 2020, as well as the re-introduction of mobility restrictions to bring it back under control, has had a negative impact on the global recovery. The Euro-zone economy went backwards in Q4, as did the UK’s in November, and in the US and Canada employment has fallen in recent months. GDP growth in Q1 2021 is also likely to be negative or weak in the major advanced economies (AEs). Similarly, survey and high frequency data point to a softening in emerging market (EM) conditions at the start of 2021.
  • That said, the impact of restrictions on activity has been far more muted than was the case in the first round of lockdowns early in 2020, with businesses better prepared to continue operations and restrictions generally more targeted. The manufacturing sector in particular, has continued its recovery.
  • Our global forecast for 2021 remains unchanged at 5.8%. However, this apparent stability masks some changes in AEs –with a stronger outlook for North America offset by softer expectations for Europe and Japan due to the tightening of COVID-19 restrictions over December and January. It also masks a switch from weaker early 2021 growth to stronger growth as the year unfolds. As a result, our forecast for 2022 global GDP growth has been revised up to 4.6% (from 3.9%).
  • This more bullish view going forward rests on the roll out of the COVID-19 vaccine currently underway and expectations of further large scale fiscal stimulus in the US. How quickly vaccines can be deployed (and how effective they are), is a major uncertainty. While AEs are not expected to see a widespread deployment of vaccines until late 2021, for EMs this is likely to be even later. Consistent with this we expect the gap between AE and EM growth in 2022 to be the smallest seen in over two decades (with limited policy freedom, given financial stability concerns, in some EMs another factor).

For further details, please see The Forward View – Global February 2021