World Economic Prospects Monthly

Abstract

Overview: Recent economic strength will not last ▀ Recent data confirm that the initial post‐lockdown phase of the recovery has been robust and points to a record‐breaking rise in GDP in Q3. Nonetheless, there are already signs that some sectors are beginning to lose momentum. Given this, and the lack of tangible medical progress towards overcoming the pandemic, we have cut our forecast for global GDP growth in 2021 to 5.4% (from 5.8% seen last month) after an expected 4.4% drop this year. ▀ Recent monthly economic data have surprised to the upside, so we now expect the huge Q2 fall in global GDP to be broadly reversed in Q3. Even so, the level of GDP this quarter will still be over 4% below the Q4 2019 level, a bigger fall than the peak‐to‐trough decline in global GDP during the global financial crisis. ▀ Beyond Q3, growth looks set to slow notably. After initially bouncing strongly, retail sales growth has eased, perhaps even starting to contract. This may partly reflect compositional changed to households spending patterns as some services re‐open. ▀ Even so, our aggregate advanced economy consumer sentiment measure fell for a second month running in August, suggesting some caution among households. This will be exacerbated by the ongoing unwinding of emergency fiscal support measures for households. With banks already expecting to tighten credit standards and some firms beginning to repay some of the money that they borrowed during lockdown, we expect the investment recovery to be quite weak. ▀ Although we still expect average q/q global GDP growth to broadly match that seen during 2010 – the best year since the global financial crisis – we now see GDP expanding by 5.4% in 2021, 0.4pp lower than a month ago. This partly reflects the fact that we now assume a Covid‐19 vaccine will not be in circulation until the middle of next year, about six months later than we had previously assumed, resulting in a more prolonged period of social distancing measures.