THE global economy is poised to be gradually entering a new phase in 2021 after emerging from the pandemic-related supply shock and historic recession earlier this year.
In this regard, Moody’s Analytics projects global real gross domestic product (GDP) to fall 4.1% year-on-year-on-year (yoy) in 2020 – much worse than the 1.8% decline during the Great Recession – before rising 5% in 2021.
“We have revised the contraction upward from last month’s 4.5% forecast decline as key economic data from countries such as China, Japan, India and Italy surprise to the upside,” commented senior economist Stephen Ciccarella in a global outlook analysts entitled The Long Road to Normal.
“The global economy will lose significant support from the US this year as the world’s largest economy struggles to contain the disease and has shied the likely implementation of a new round of fiscal stimulus to early 2021.”
Moody’s Analytics expects the US real gross domestic product (GDP) to contract by 3.5% yoy in 2020 with growth re-accelerating to 4.1% next year. At the same time, China will continue to go from strength to strength.
“As one of the few countries to expand in 2020, we project that it will resume as the world’s fastest growing major economy in the year ahead,” suggested the non-rating arm of Moody’s Corporation (separate from Moody’s Investors Service).
With monetary policy remaining ultra-accommodative throughout 2021, Ciccarella expects external debt burdens in emerging markets (EM) will continue to soften, in particular US dollar-denominated debt instruments which rose above US$4 tril for the first time during the second quarter.
“In contrast to past crises, most EM central banks also lowered policy rates during the pandemic, supporting government bond issuance and easing domestic debt servicing costs,” Ciccarella pointed out.
According to Moody’s Analytics, Emerging Asia topped the level of inflows as China-led growth there stabilises the region, a trend that is expected to persist into 2021.
China’s strong recovery has solidified with a broad set of high-frequency indicators signalling a durable expansion. The country was one of the first to emerge from stringent lockdown measures related to the pandemic, leading to earlier economic recovery.
The Chinese economy grew 4.9% yoy in the third quarter, accelerating from a 3.2% advance in the second quarter and further surpassing its pre-pandemic level of output.
After sinking 6.8% yoy in the first three months of 2020, its first quarterly decline in 28 years, China’s rapid rebound has been production- and export-led, with its fiscal stimulus channelled to infrastructure spending and the industrial sector rather than directly to consumers. – Jan 7, 2021
