GLOBAL growth prospects are improving as fiscal support is stepped up sharply, economies adapt to social distancing and vaccination rollout gathers momentum, according to Fitch Ratings in its Global Economic Outlook (March 2021).
Fitch now expects global gross domestic product (GDP) to expand by 6.1% in 2021, revised up from 5.3% in its December 2020 Global Economic Outlook (GEO).
“This is an eye-catching rate of growth and the fastest annual pace since at least 1980,” the rating agency pointed out.
“But it follows a post-war record decline of 3.4% last year (revised from -3.7% in December) so is heavily flattered by the low base.”
Also, along with better-than-expected outturns in 4Q20 – particularly in Europe and emerging markets (EM) – Fitch expects the world GDP to be 2.5% higher this year than in 2019.
In addition, Fitch forecasts the world GDP to grow by 3.9% in 2022, little changed from its December’s forecast.
“Even so, taking the two years in combination highlights that this recovery is expected to be faster than after the global financial crisis (GFC),” Fitch commented.
“We expect US GDP growth to be 6.2% in 2021 (revised up from 4.5%), China at 8.4% (from 8.0%), the eurozone at 4.7% (unchanged) and EM excluding China at 6.0% (up from 5.0%).”
The main drive for Fitch’s global forecast revision is the much larger-than-expected fiscal stimulus package recently passed in the US. The US$1.9 tril price tag represents more than 2.5% of global GDP. Fiscal support had a powerful cushioning impact in 2020.
The UK, Italy, Japan, Germany and India have also announced further fiscal easing and the EU’s Next Generation EU recovery fund (NGEU) will provide a sizeable boost to eurozone growth in 2022.
China is the only major economy starting to normalise macroeconomic policy settings, where the fiscal deficit is being scaled back and credit is slowing as the recovery matures.
Meanwhile, GDP outturns for 4Q20 were better than expected almost across the board with world GDP ending the year only 1% down on pre-pandemic (4Q19) levels.
“This was despite a number of major economies re-imposing nationwide lockdowns or tighter restrictions late last year,” the rating agency remarked.
“Positive surprises serve to illustrate how economies have adapted to life under social distancing.” – March 18, 2021