Global Economy to regain speed on a Bumpy Road to recovery

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 Global Economy to regain speed on a Bumpy Road to recovery

Summary

  • The global economy is expected to grow in the next 2 years, but recovery will be uneven across various countries and regions.
  • Europe and the US continue to struggle with the second wave of COVID-19 infections halting the economic recovery, but they are projected to rebound gradually as the virus cases come under control.
  • China is likely to be the only economy to witness positive growth in the year 2020.
  • OECD has projected Real GDP growth of 4.2% and 3.7% in 2021 and 2022, but tackling the pandemic is still projected to pose economic strains.

The global economy has shown its remarkable resilience as it gradually progressed through the COVID-19 pandemic.

Though prospects for a way out of the crisis have risen, some countries are still battling the rising number of virus cases by re-imposing partial lockdowns. At the same time, some are cautiously and slowly reopening their economies.

Source: Shutterstock

As on 13 December, coronavirus claimed more than 72 million lives and killed more than 1.6 million people by infecting more than 218 countries and territories around the world and 2 international conveyances.

The global economy is gradually recovering from the collapse in output witnessed during the initial months of the virus outbreak and easing lockdowns, along with swift placement of policy support by central banks and governments.

Here is a global snapshot of how the virus is affecting economies worldwide.

Virus-hit European economy to witness mild recovery over the next 2 years

The resurgence of virus cases in the US and Europe has slowed the momentum of global economic recovery.

EU is coping up with the resurgence of virus and the resultant new constraints and lockdowns, triggering contraction in economic activity. Market reports suggested that a consumer's willingness to spend and high savings, along with persistent monetary and fiscal aid, will help in economic recovery of the region.

The European Central Bank increased the purchase of government bonds, reduced borrowing costs of banks, and kept interest rates at a record low to fight the economic effects arising due to the pandemic.

Source: Shutterstock

On 10 December, ECB released USD 600 billion for stimulus as winter season led to a surge in coronavirus cases, resulted in shutting down of the economy, and eliminate pre-Christmas revenue from sales.

OECD predicts a GDP growth of 3.5% and 3.7% in 2021 and 2022 respectively for the Euro area.

US recovery to be gradual and contingent on virus cases

Economic recovery in the US is also uncertain due to an explosive surge in COVID-19 cases in the country. Coronavirus has infected about 16 million people and killed about 300,000 people in the US to date.

Jerome Powell in a webcast to the ECB forum on 10 December stated that he saw the US recovery on a solid path, but if the pandemic worsened, it could have given a blow to the US economy. With a record new cases  and the reimposition of several restrictions, the next few months could be quite challenging even if a vaccine is rolled out.

The US economy is projected to rise by 3.2% in 2021 and 3.5% in 2022, after a vaccine rollout in the latter half of 2021 allows the easing of containment measures, as per OECD.

China leading the global economic recovery

China is the only economy expected to grow in 2020 with a pick-up in consumer spending and coronavirus pandemic under control.

Source: Shutterstock

Exports have been one of the most prominent factors in propelling the economic rebound of the country as the global demand for masks, protective gear and electronic products  related to work from home rose amid rising virus cases.

ALSO READ: Chinese Factory Output Growth Outshines many Asian Countries

GDP of China is projected to grow by 8% in 2021 and about 4.9% in 2022, as per the latest OECD statistics, with more support needed for small firms and people hit by the virus to achieve a robust recovery.

Global GDP projections by various organisations

Morgan Stanley has predicted robust global GDP growth of 6.4% and 4.4% for 2021 and 2022, driven by emerging markets, followed by reopening of economies in the US and Europe.

The investment bank stated that 3 critical factors of synchronised global growth, rebound in emerging markets, and the return of inflation would play a vital role in the next stage V-shaped recovery.

Source: Shutterstock

Fitch Ratings has revised its global growth projection to 5.3% (5.2% earlier) for 2021 and 4% in 2022 (3.6% earlier) amid more substantial growth in the second half of 2021 partially nullified by immediate months ahead.

Brian Coulton, Chief Economist at the rating agency, stated that as the resurgence of the virus triggers new restrictions, the global recovery journey is becoming rougher than anticipated. Still, the vaccine news is very optimistic for the economic outlook over the next 2 years.

OECD has projected real GDP growth of 4.2% and 3.7% in 2021 and 2022 respectively.

The organisation states that scientific advancements, medical developments, more reliable tracing, and isolation, and shifts in the behaviour of individuals and companies would help hold the virus in place, allowing mobility limits to be eventually removed.

In its October World Economic Outlook report, IMF projects global growth to recover to 5.2% in 2021 and recovery to gradually slow down to 3.5% in the medium term after the rebound in 2021.

ALSO READ: IMF says global economic recovery may be fading due to second wave of virus

The world economic recovery can get a more solid foothold if coronavirus vaccines are rolled out, which could result in the subsequent lifting of the restrictions and opening up of the economies entirely.

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