IHS Markit Top 10 Economic Predictions for 2021: Global GDP to Increase 4.5 Percent in 2021

After enduring its deepest recession in 74 years in 2020, the global economy is expected to rebound in 2021, according to the annual Top-10 Economic Predictions released recently by IHS Markit.

IHS Markit’s top prediction for 2021: a successful, widespread COVID-19 vaccination program is expected to enable a transition to post-pandemic economic growth of 4.5 percent.

Sara Johnson, executive director, global economics IHS Markit, told SCMR that the rapid deployment of effective vaccines and reopening of economies should gradually unleash a new wave of spending on travel and services, driving robust growth in the later part of 2021.

“After a 4.0 percent decline in 2020, the global economy is expected to expand 4.5 percent next year, with global output expected to reach a new peak,” she added.

The report’s second prediction shows a divergent timeline for the economic recovery, with a return to economic growth varying widely across regions. Mainland China recovered in the second quarter of 2020, but recoveries to pre-pandemic levels are forecast to take until 2023 or 2024 in Japan and several major European economies. While unemployment rates are expected to fall in most regions in 2021 as output recovers, Western Europe is expected to see a rise in joblessness as public funding of furlough programs diminishes.

IHS Markit’s third prediction for 2021 is the shift in focus of investors and policymakers from COVID-19 to the impact of climate change, forecasting the trend in ESG issuance to continue next year. “We expect to see continued scrutiny of the ESG contributions of new investments and an uptick in the use of sustainability-linked issuance,” continued Johnson. “Meanwhile, policy support for renewable energy from key governments and declining costs for wind, solar and battery power is forecast to accelerate the energy transition and restrain hydrocarbon demand and prices.”

Other Top-10 predictions include:

• Monetary policies should remain accommodative: Policy rates in the United States, Eurozone, the United Kingdom and Japan are expected to remain near or below zero well beyond 2021. In emerging markets, where inflation is a more immediate concern, monetary easing is ending but policy rate increases will be rare in 2021.
• The global financial sector should avoid major crises next year: In advanced economies, expansionary monetary policies are expected to keep term debt costs sharply lower. More fiscally constrained emerging markets will rely heavily on forbearance measures to contain bank losses as the economic rebound takes hold. However, rising public and private debt burdens could lead to significant strains for banks that are heavily invested in local sovereign debt.
• Finished goods prices are expected to accelerate in 2021: Increases in commodity prices in the second half of 2020 will be pushed downstream for the next six to nine months, leading to higher prices for finished goods. In the second half of 2021, consumption patterns are expected to shift back toward services suppressed by the pandemic, while goods industries could see conditions soften even as aggregate demand strengthens. Supply-chain disruptions should also slowly be resolved.
• The U.S. economy is forecast to start 2021 slowly, accelerate in the second half: If another modest stimulus bill is implemented soon, and a highly successful COVID-19 inoculation program is well underway by summer, full year real GDP growth is expected to exceed 4.0 percent next year, with a reasonably good probability of growth reaching above 5.0 percent in the second half of 2021. A more significant stimulus bill of more than 900 billion USD would be expected to raise full year U.S. GDP growth to more than 5.0 percent next year. However, without additional fiscal stimulus, and if lockdowns are implemented to contain the latest surge of infections, real GDP growth is projected to be near 3.0 percent in 2021, with greater downside risks.
• Europe’s 2021 annual growth rates are expected fall short of expectations: The COVID-19 virus’ prevalence and related containment measures will continue to hinder the recovery early in 2021. Lagged increases in business failures and unemployment is forecast to restrain growth as policy support diminishes, though we expect a pronounced vaccine-driven pick-up in eurozone growth rates from mid-year. Eurozone real GDP is projected to rise about 3.5 percent in 2021, with the return to pre-pandemic levels not expected until late 2022.
• IHS Markit expects Mainland China’s economy to accelerate to its strongest growth rate in recent years but the rebound to wane: The expected launch of effective COVID-19 vaccines and pent-up demand will help the Chinese economy expand 7.5 percent in 2021, its highest rate since 2013. After the cyclical rebound, the economy is forecast to return to the deceleration path that began in 2012, as productivity growth slowed in response to stalled economic reforms.
• The U.S. dollar is expected to weaken in 2021: A lagged response to the Fed’s sharp pivot to monetary accommodation in early 2020, an increase in investor risk tolerance and a widening trade deficit is expected to drive weakness in the dollar next year. ECB policy accommodation should lean against substantial further euro appreciation, though expected U.S. dollar weakness and continued high current account surpluses represent upside euro risk. The Japanese yen should benefit from strengthening exports and relatively low inflation. The renminbi is forecast be supported by mainland China’s accelerating economy and comparatively conservative monetary policy.

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