Global GDP Expected to Advance Supply Chains by 5.1% in 2021

Global economic growth will strengthen in the second quarter; as vaccinations accelerate and activity restrictions are eased, consumer spending will revive, lifting global output to a new peak by the third quarter of 2021, maintains Sara Johnson, executive director, global economics, IHS Markit IHS Markit World Flash

She adds that businesses will gain confidence in the recovery’s durability and move forward with new investments. World real GDP is projected to advance 5.1% in 2021 and 4.3% in 2022 before settling to a more sustainable 3.1% growth pace in 2023–25.

“The global economy will achieve solid growth in 2021 and 2022 as the COVID-19 pandemic subsides. Price inflation will pick up in the months ahead, but the pace is likely to be moderate rather than high as supply conditions improve,” says Johnson.

The United States and mainland China are leading the global expansion. US real GDP is projected to increase 5.7% in 2021 and 4.1% in 2022, as the lift from the new USD1.9-trillion fiscal stimulus package is partially offset by headwinds from rising long-term interest rates. Mainland China’s economy is expected to grow a robust 7.8% in 2021 as the recovery in consumer demand gains traction with effective COVID-19 virus containment. Growth will slow to 5.7% in 2022, resuming a downward trend in response to deleveraging and diminishing productivity gains.

As the global economy recovers, inflationary pressures are building. In several markets, strengthening demand is colliding with pandemic-constrained supply, driving up prices. The IHS Markit Materials Price Index has surged 44% since early November 2020, standing 75% above its year-earlier level during the week ended 12 March. Price increases have been broadly based, encompassing metals, lumber, energy, chemicals, fibers, and semiconductors. As these price increases move downstream, prices of finished goods and services are accelerating. Led by accelerations in the United States and other advanced economies, global consumer price inflation is projected to pick up from 2.1% in 2020 to 2.8% in 2021.

Policy stimulus and the resilience of consumer demand as economies reopen will be primary forces affecting inflation. Household savings surged in 2020 in response to government stimulus payments and COVID-19 containment measures. Accumulated “excess” savings during the pandemic are estimated at over USD3 trillion globally and could drive a faster resurgence in consumer demand than we currently anticipate. Monetary policies are expected to remain highly accommodative, resulting in ample credit availability.

“While inflation is clearly an upside risk to the forecast, a return to the double-digit inflation rates seen in the mid-1970s and early 1980s is unlikely. Many of the current supply disruptions are temporary. Indeed, as supply conditions improve, IHS Markit analysts expect a significant correction in industrial materials prices in the remainder of 2021,” says Sara Johnson.

Outside of North America, gaps between potential and actual output remain large in many economies. It will be several years before the global unemployment rate—estimated at 8.1% in 2021—returns to its 2018 cyclical low of 6.5%. Since the 1980s, inflation targeting has become conventional policy for central banks in developing, emerging, and advanced countries.

Policy vigilance has kept global inflation in single digits during the past three decades and anchored inflation expectations around 2% in the advanced countries. Meanwhile, cost-of-living escalators that fueled wage-price spirals in the past are much less prevalent. International price competition facilitated by the rise of global trade has also restrained inflation.

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