The global economy should rebound 5.6% on-year in 2021, although the recovery will be slower in Japan and Europe. The latter has seen its short-term outlook deteriorate due to the third Covid-19 pandemic wave sweeping through the continent, but the US should return to pre-pandemic growth this year. So says Fitch Solutions global head of country risk Cedric Chehab.
Mass Covid-19 vaccinations and policy support will drive the recovery this year, but growth will diverge by region depending on vaccination rollout speed. In the EU, a slower rollout will delay economic reopening, Chehab said during a webinar attended by Kallanish.
Fiscal and monetary support will underpin growth. Fiscal policy will be broadly loose, with government spending versus GDP to remain markedly higher in the next years versus pre-Covid-19 levels. Interest rates are meanwhile set to remain at historic lows. Central bank actions have eased credit conditions and helped credit growth.
The Covid-19-induced economic downturn has been different from the 2008/09 global financial crisis. This time around, the housing market is doing much better, credit growth has slowed only slightly, delinquency rates remain in good territory and banks are performing better. During the previous financial crisis, the recovery was driven largely by huge Chinese stimulus, while this time around growth will be much more synchronised globally, as many countries launch stimulus packages, Chehab observed.
US growth, driven by government stimulus equating to 13% of GDP, should return to pre-pandemic growth in late 2021 or early 2022. The European recovery however looks weak compared to the size of contraction last year. “Many EU countries will not achieve pre-Covid levels of output for several years,” Chehab observed.
Chinese GDP will grow 10% in 2021. However, the country will focus on the quality rather than the speed of growth, with a rebalancing towards private consumption and manufacturing.
Chinese government spending propped up steel demand in the first half of last year while the rest of the world suffered from Covid-19 lockdowns. Since the fourth quarter, especially, rest-of-world demand, notably from the automotive industry, has recovered, pushing steel prices to multi-year highs.
Adam Smith Germany
