Global Economic Outlook - August 2021

As vaccination campaigns are underway, the world economy is recovering from the pandemic. Most advanced markets have already vaccinated large parts of their population, while the outcome is more mixed in emerging markets. Global GDP growth in 2021 will be mainly consumer driven, as spending opportunities, mainly in services, are opening up. Monetary policy will remain very loose despite inflationary pressures, and fiscal support packages are partially extended in 2021. However, global GDP growth could be threatened by the spread of new, more transmissible variants of the virus. Such a downside scenario could significantly push down growth in 2021 and in 2022.

Key points

• As the vaccination rollout gets underway, economies are gradually opening up, leading to a global GDP recovery of 6.2% in 2021, followed by a forecast 4.7% growth in 2022. A risk to the recovery is posed by new, more transmissible variants of the Covid-19 virus.

• We expect a robust and broad-based recovery of global trade in 2021. China´s economy was outperforming in early-2021, but other regions have caught up in recent months. Global trade is expected to grow by 6% in 2021, followed by a similar amount in 2022.

• Advanced economies are expected to surpass pre-crisis activity levels in 2021. GDP in advanced markets as a group is forecast to grow by 5.8% in 2021, followed by a 4.2% increase in 2022.

• Despite the ongoing vaccination campaign, eurozone economies are still struggling with the Covid-19 virus. We expect a recovery of 5.0% in 2021, followed by a slightly lower increase in 2022. All member states are expected to see GDP levels recovering to pre-pandemic levels by the end of 2022. However, the rebound is uneven, with tourism-dependent countries in Southern Europe lagging behind their Northern peers.

• The US economic outlook has strengthened markedly since our February Economic Outlook. Apart from the UK, the US is well ahead of most other advanced countries in vaccinating its population, and the economy reopened during the first half of the year. Additional support is coming from a major (USD 1.9 trillion) fiscal stimulus package, approved by Congress in March 2021, and a USD 1.0 infrastructure bill approved in August.

• The Japanese economy rebounded in the second half of 2020, but saw a temporary setback at the beginning of 2021, due to rising infections. Despite the weak start, the economy is showing a robust recovery in H2 of 2021. The economic stimulus from the Tokyo Olympics will be smaller than previously expected, as they were held under a state of emergency.

• The economic recovery of many emerging market economies (EMEs) lags behind, mainly due to a slower vaccine rollout. Additionally, the scope for fiscal stimulus is more limited. Asia is the region with the highest growth rate among EMEs, while particularly MENA and Sub-Saharan Africa lag behind. Economic growth across EMEs is forecast to recover by 6.9% this year, followed by another 5.3% growth in 2022.