Global Economy Forecast To Grow 5.3 Per Cent This Year

Ottawa, May 13, 2021  — The Conference Board of Canada forecasts that the global economy will grow by 5.3 per cent this year and 4.0 per cent in 2022 as the rollout of COVID-19 vaccines accelerates and fiscal stimulus continues to support consumer spending.

Last year (2020), world economic growth fell by 3.7 per cent, a worse decline than during the 2008-09 financial crisis. The recovery in the global economy that is now underway is being propelled by the rollout of vaccines and the massive fiscal and monetary stimulus coming from governments and central banks around the world.

“World economic activity slowed sharply towards the end of last year in many regions due to a resurgence of the virus and the re-imposition of lockdown restrictions,” says Pedro Antunes, Chief Economist at The Conference Board of Canada. “Governments and central banks in the world’s major economies are committed to proving support for their economies with the hope of eventually returning labour markets to pre-pandemic levels”.

However, the global economic recovery is forecast to be uneven as most countries in the Asia Pacific region have handled the virus better than other parts of the world, while Latin America will lag the recovery due to a lack of fiscal capacity and poor leadership in several countries.

“The main risks to the global outlook revolve around the successful rollout of COVID-19 vaccines and the ability to control new variants of the virus that have popped up in many countries,” says Kip Beckman, Principal Economist at The Conference Board of Canada. “Vaccine distributions will largely determine the pace of the worldwide economic recovery this year and leading into 2022.”

The Conference Board’s outlook for economic growth in specific regions is as follows:

United States:  The U.S. economy is set to expand by 5.7 per cent this year following a 3.5 per cent decline in 2020. Next year (2022), a solid gain of about 4.8 per cent is anticipated. The rebound comes, in part, from the massive US$1.9 trillion stimulus recently implemented by the Biden administration. The stimulus provides funds for families, state and local governments, healthcare, and the delivery of vaccinations, among other things. Also, the rollout of vaccinations, which is ahead of schedule, has led to a gradual re-opening of the economy and higher household spending. The Biden administration recently announced plans for even more fiscal stimulus including a large infrastructure initiative. 

Asia-Pacific: The Asia Pacific region outperformed the rest of the world last year as economic activity dropped by only 1.2 per cent. Demand from China, which was one of the few countries in the world to post growth last year, boosted export growth in several countries including South Korea and Japan. Also, many countries in the region did a better job at controlling the virus compared with the European Union (E.U.) and the U.S. due, in part, to their experience with SARS in the early 2000s. This year, the region should grow by a healthy 6.5 per cent as the Chinese economy continues its strong recovery, a development that boosts export prospects throughout the entire region.

European Union: The economic recovery in the E.U. will lag the rest of the world mainly because a surge in COVID-19 infections towards the end of last year has led to additional restrictions on activity and it is likely that some countries in the region have slipped back into recession. Around 15 per cent of new COVID-19 cases in the early part of this year have been in EU countries even though the region has only 6.0 per cent of the world population. Some of these restrictions have continued through the spring and this will hamper the recovery. Also, the rollout of vaccines has been slow in several countries due to logistical issues and production delays. The development of new strains of the virus hasn’t helped the situation. For the entire year, a gain in growth of 4.1 is anticipated for the E.U. while similar growth is expected in 2022.

Latin America: The pandemic has been particularly challenging for Latin America due to the poor response to the virus by several leaders in the region, particularly in Mexico and Brazil, and the region’s weak healthcare systems. As such, Latin America will continue to underperform the rest of the world as real GDP is expected to expand by 4.3 per cent this year compared with a gain of 5.3 per cent for the global economy. In 2022, a below average increase in real GDP of 2.9 per cent is forecast. The destruction of physical and human capital in Latin America due to the pandemic implies that it could take at least two years to recover to pre-pandemic levels of production. The debt issues in some countries have limited the policy response available to support the recovery compared with countries like the U.S., which seems to have an unlimited ability to provide stimulus. On the plus side, the recovery in the global economy should boost demand for the region’s natural resources. Higher prices for commodities including copper and oil will also help several countries in the region.    

Risks To The Outlook: As mentioned, the main risks to the global outlook revolve around the successful rollout of COVID-19 vaccines. There are also ongoing geopolitical concerns related to U.S.-China relations. At this point it is unclear how the Biden administration will handle some of the policies implemented by former President Trump, such as widespread tariffs on Chinese exports to the United States. World oil prices have increased since March and there was initially some speculation that they could surge to the US$70 per barrel range or even higher. This likely won’t be the case because rising oil prices will lead to higher production, especially among U.S. shale companies. A vaccine passport could help revive the global tourism industry, but they are not without controversies. China is considering a vaccine passport for the Winter Olympics in 2022.   

About the report:
The report is available to media for editorial purposes and our team of economists are accessible for comment and interviews; please email media@conferenceboard.ca for inquiries and to access the report.