2021: A Gradual Return to Normalcy…
The arrival of vaccines against coronavirus and the ongoing central bank stimulus have fuelled hopes for greater certainty in 2021
Growth should accelerate gradually in 2021 without triggering a troubling rise in inflation or interest rates, despite much higher government debt.
Emerging economies are expected to lead the global recovery, mainly China, given its successful containment of the pandemic relative to developed markets.
Meanwhile, a sustained growth is predicted to prevail in the US led by housing and consumer spending. As companies rehire workers, consumer spending is expected to rebound and activity should remain supported by overwhelming fiscal and monetary policy.
Europe’s economy is also expected to see a sharp rebound as its core economies – Germany and France- are showing signs of acceleration with marked increase in exports.
IMF has projected global economic growth to rebound at 5.2% for 2021, which likely reflects a solid growth in corporate profits in the coming quarters.
Source: IMF, World Economic Outlook and IMF staff calculations
Nore: AEs = Advanced Economics; EMDEs = Emerging Markets and Developing Economies; CHN = China
Index; 2019Q1 = 100
A partial recovery in output is expected in both advanced economies and emerging and developing economies.
With Some Downside Risks…
The major risks to the outlook include, but are not limited to:
1. Policy Mistakes
A premature withdrawal of policy support or a tweak to monetary policy is the single biggest risk for the economic outlook.
2. Lingering Uncertainty on Vaccines
Lingering uncertainty on vaccines makes for significant downside risk. Safety issues, secondary effects, duration of immunity, potential virus mutation: any of these could result in hopes of a return to normalcy being disappointed.
3. The Debt Legacy
Over the longer term, high government debt will remain a challenge for policymakers and high debt is thus likely to be one of the lasting burdensome legacies of COVID-19. Debt to GDP levels already rose by a fifth in the developed world and tenth in the developing world.
4. Deglobalization Trend
Trade barriers and frictions that have increased since 2016 are likely to stay. Tensions over technology and investment are likely to remain in place or even worsen