THE global economic recovery will strengthen and become more sure-footed from the middle of next year as COVID-19 vaccines are being rolled out and social distancing starts to unwind.
In its latest Global Economic Outlook (GEO), Fitch Ratings expects global gross domestic product (GDP) to fall by 3.7% in 2020 compared to 4.4% in its September GEO.
This is despite the expectation of renewed falls in GDP in the fourth quarter of 2020 (4Q 2020) in the eurozone and the UK following the recent tightening of restrictions – and reflects the fact that global activity rebounded much more quickly than expected in 3Q 2020.
“The global recovery path is proving bumpier than expected as the second wave of the virus prompts new restrictions, but the vaccine news is very positive for the economic outlook over the next two years,” Fitch Ratings chief economist Brian Coulton pointed out.
Fitch has revised up its 2021 global growth forecast to 5.3% (from 5.2%) with stronger growth through second half of 2021 (2H 2021) partly offset by weakness in the immediate months ahead.
US GDP is now projected to expand by 4.5% (up from 4.0%) and China by 8.0% (up from 7.7%) but eurozone growth is now forecast at 4.7% (down from 5.5%) as renewed lockdown measures take their toll on activity over the winter months.
Fitch has also revised up its global growth forecasts for 2022 to 4.0% from 3.6% to reflect the anticipation of reduced social-distancing disruptions once immunisation programmes have broadened.
“These are likely to provide a sizeable boost to public investment and we have raised our eurozone growth forecast for 2022 to 4.4% from 3.2% in the September GEO,” projected Fitch. “US GDP is now expected to grow by 3.5% in 2022 (up from 3.0%).”
Developments in the past few months have thrown more light on the unprecedented economic impacts of the pandemic.
Strong and faster-than-expected recoveries in 3Q 2020 illustrated the boost to activity from re-opening even if a true ‘V-shaped’ rebound remained elusive.
While the recent second wave of lockdowns is not compressing activity anywhere near as sharply as in April, base effects will lift sequential growth markedly when restrictions are eased in 2021.
On the hindsight, the credit rating agency cautioned that the vaccine rollout problems or delays are the key downside risk to the forecast and could result in repeated circuit-breaker restrictions and extensive social distancing through 2021, thus weighing heavily on GDP.
“In the next couple of months there could be a sharper-than-anticipated weakening in US activity from tighter social-distancing restrictions, leading to a fall in GDP in 1Q 2021,” projected Fitch.
“The potential disruption from a failure to agree a free-trade deal between the UK and the EU could also have a more severe impact than the one incorporated into our UK GDP forecasts.” – Dec 8, 2020
