IHS Markit reported activity restrictions will stall global real GDP growth in the first quarter of 2021, with most of Europe in recession - Photo by OECD

JAKARTA (TheInsiderStories) – IHS Markit reported activity restrictions will stall global real GDP growth in the first quarter of 2021, with most of Europe in recession. So far, the agency noted, another wave of the COVID-19 pandemic has disrupted economic activity in early 2021.

“After stalling in early 2021, the global economy should prove resilient as vaccines are deployed and the pandemic subsides. After a 3.9 percent decline in 2020, world real GDP is projected to increase 4.4 percent in 2021 and 4.1 percent in 2022,” said Sara Johnson, the executive director for global economics at IHS Markit in the latest report.

In fact, the global infections and deaths are reaching new highs, while the rollout of vaccines is uneven across geographies. The institution anticipates that new COVID-19 infections will decline in the months ahead as vaccines will become more widely available.

“As lockdowns end, a revival in consumer spending will spark an acceleration in the global economy in the second quarter. World real GDP is projected to surpass its late-2019 pre-pandemic peak in the third quarter of 2021,” said Sara Johnson, the executive director of global economics at IHS Markit in the latest report.

In the United States, she noted, a new US$900 billion fiscal stimulus will avert a contraction in real GDP in the first quarter, offsetting the drag from a higher winter peak in the virus infections. This front-loaded fiscal support will provide a bridge to the second half of the year, when pent-up consumer spending will likely push real GDP growth above a 5 percent annual rate.

In addition, Johnson rated, the resurgence of COVID-19 and widespread lockdowns led to a second wave of recessions across most of Europe in late 2020 and early 2021, albeit less severe than downturns in the first half of 2020. She continue to forecast a consumer-led growth spurt from spring 2021 as vaccinations facilitate a reopening of economies.

According to Johnson, a last-minute trade agreement at the close of 2020 averted the tail risks associated with a disorderly British exit from the European Union. However, the deal does not replicate the frictionless trade that existed previously, and ongoing adjustments to the new arrangements will hinder the UK’s recovery from the pandemic shock.

In Asia, China’ real GDP grew 6.5 percent in the fourth quarter of 2020, up from 4.9 percent in the previous quarter. Growth strengthened broadly across industrial and service sectors. New local outbreaks of the COVID-19 virus should not derail the expansion, although consumer demand could lose steam.

After a cyclical rebound of 7.6 percent in 2021, the economy will return to the deceleration path that began in 2012, as productivity growth slowed in response to stalled economic reforms. The recent surge in industrial materials prices is expected to bring a burst of finished goods price inflation by mid-2021, leading to an acceleration in consumer prices.

While, global consumer price inflation is projected to pick up from 2.1 percent in 2020 to 2.3 percent in 2021 and 2.6 percent in 2022, led by accelerations in the United States and other advanced economies. If demand proves more resilient than anticipated once the pandemic subsides and commodity prices remain elevated, downstream inflationary pressures would intensify.

The US Dollar’ exchange rate is expected to depreciate over the next two years in response to low interest rate spreads, an increase in investor risk tolerance, and a widening trade deficit. Then, European Central Bank policy accommodation will limit the extent of further euro appreciation.

In addition, the Japanese yen will benefit from strengthening exports and relatively low inflation. The Renminbi will be supported by mainland China’ accelerating economy and comparatively conservative monetary policy.

Written by Editorial Staff, Email: theinsidestories@gmail.com