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Global Economy Poised for Rapid Recovery

April 27, 2021

The global economy looks set to recover this year, from the turmoil brought on by the coronavirus pandemic, at a pace not seen since the 1970s, as strong momentum is beginning to build in most major world economies.

Such optimism has largely been led by an expected vaccine-driven recovery, massive liquidity injections, unprecedented government fiscal support, and continued adaptation of economic activity to overcome subdued mobility. With many countries still facing challenges from the pandemic, fears of the likelihood of a renewed spike in coronavirus cases do exist, which could potentially derail a global economic recovery this year.

2021 growth views for 55% of 44 economies suggest that the US economy, predicted to mark the fastest annual expansion since 1984, and that of China, are set to return to pre-crisis levels this year.

“A synchronised global economic recovery is underway, notwithstanding the continuing battle against COVID-19. Every economy we cover is projected to register a meaningful rebound in annual average GDP growth this year,” said Janet Henry, global chief economist at HSBC.

“Much will depend on whether governments prefer a strategy of eliminating or suppressing the pandemic; access to effective vaccines; the structure of the economy; the willingness of households to spend their accumulated savings; and the scale and mix of policy stimulus.”

The devastating pandemic pushed the world economy into its deepest-ever recession last year, but the poll showed a sharp rebound with the global economy predicted to grow on average 5.9% this year, the fastest since the 1970s. That compared to 5.3% expected in January and a sharp upgrade compared to expectations from a year ago, when the pandemic took hold.

While the latest consensus is just a touch below the International Monetary Fund’s 6% projection, nearly 30% of 74 economists predicted world GDP growth in excess of the IMF’s forecast. 

Over 85% of economists, in response to an additional question said the recovery would be faster than previously expected or about the same pace versus the remaining 26 predicting a slower pace of rebound. None foresaw a downturn.

Despite these upgrades to economic growth, the job market recovery was expected to lag, with unemployment rates not forecast to return to pre-crisis levels this year or next for most advanced economies polled on.

While the latest jobs outlook has improved slightly compared to April last year on trillions of dollars worth of stimulus, it still suggests the COVID-19 pandemic would leave many million workers jobless, with several economic sectors disrupted by mobility restrictions not expected to recover any time soon.

Also, projected quarterly growth forecasts showed uneven momentum for economies from developed to emerging in the latest polls, reflecting worries that public health gains against the coronavirus have stalled in some parts of Asia, Latin America, and Europe.

“Growth rates are still set to be fairly erratic on a quarterly basis and vary enormously between economies and within them. For some economies momentum is set to slow, so much of the strong rebound in the forecast annual average GDP growth rates in 2021 reflects the rebound from the pandemic lows already delivered,” added HSBC’s Henry.

Following massive stimulus and the pandemic-led supply constraints, the 2021 inflation outlook for over 70% of 44 economies polled on was upgraded, with over 80% of 207 economists answering a question saying risks to their already elevated forecasts skewed more to the upside.

Inflation has ticked up in some advanced nations on pent-up demand, spurred by the re-opening of economies and a global increase in commodity prices.

But base-case expectations were not for a sustained rise in prices, with inflation forecast to moderate next year for most economies.

Monetary policy has drawn renewed attention after the Bank of Canada on Wednesday cut the pace of its bond purchases, making it the first Group of Seven central banks to move towards withdrawing extraordinary stimulus.

The European Central Bank or the Federal Reserve were not expected to start winding down their asset purchases programme this year.

“The biggest risk now, we feel, is that US inflation rises such that the Fed is forced into a hasty exit of COVID-19 era accommodation, and is far more aggressive than current market pricing, which is already more hawkish than the Fed’s own timetable,” noted analysts at Barclays.

“However, we think this is unlikely. We expect US inflation to moderate by the end of 2021, after a mid-year spike.”

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