Despite the emergence of coronavirus variants of concern, the global economy is on the mend
After a devasting 2020, the economic outlook for this year is much better as vaccination rates move higher and case counts decline.
The global economy shrank by 3.6% last year, marking only the second time worldwide GDP shrank during the last 40 years of comparable data.
The outlook for the global recovery continues to be revised up despite an April surge in COVID-19 cases in many parts of the world. Six months ago, the global economy was expected to grow by 5.1% in 2021—it is now expected to reach 6.3%.
Growth will be fairly broad-based this year although many tourist-dependent economies will have to wait until into 2022 before their recovery becomes deeply entrenched.
Emerging markets generally face greater health risks and vaccination is going more slowly. Rising commodity prices and strong world demand for emerging market exports, however, are leading to upward revisions to developing country growth forecasts, which currently stand at 6.9% for emerging markets as an aggregate. This is above the 5.8% expected in the advanced world.
Growth in the global economy will decelerate next year but remain strong, with a gain of 4.6%.
Real GDP growth
Sources: Oxford Economics, Deloitte
US economic growth set to soar
While the contraction in the United States was not as severe as in many countries, the country is set for one of the strongest rebounds thanks to significant monetary and fiscal stimulus.
Policymakers in the United States appear keen to avoid the prolonged economic recovery the country experienced after the financial crisis a decade ago.
On the monetary policy front, the US Federal Reserve has shrugged off the recent spike in inflation and is keeping its federal funds rate between 0 and 0.25%, sticking with its quantitative easing program and continuing to use forward guidance to convey to the market its expectations for sustained low interest rates.
Since the beginning of the pandemic, total fiscal stimulus in the United States has amounted to nearly US$6 trillion, boosted by President Joe Biden’s US$1.9 trillion stimulus package. As a point of comparison, the entire US economy produced $21.4 trillion in output in 2019, before the pandemic hit.
Overall, the US economy is expected to grow by 7.7% this year and another 4.5% in 2022. The strong performance is important for the global recovery and bodes well for demand for Canadian exports.
US real GDP growth
Sources: Oxford Economics, Deloitte, United States Bureau of Economic Analysis