World Economic Prospects Monthly

Abstract

Overview: Delta variant delays the recovery ▀ We have cut our near-term global GDP growth forecast in response to the continued spread of the Delta coronavirus variant. Greater restrictions on activity look set to result in slower growth than we had previously anticipated in late-2021, pushing the growth rate for the year down to 5.9% from 6.2%. But there is likely to be some catch-up next year so we have raised our 2022 world GDP growth forecast by 0.2pp to 4.8%. ▀ We estimate that global GDP surpassed its pre-crisis peak in Q2 2021. But the rebound in growth after a weak Q1 was not especially strong and the Q2 rise was weaker than that seen in Q4 last year. What is more, timely activity indicators, such as the global composite PMI, have begun to soften from a high level. Delays in rebuilding US inventories have prompted us to push some of the anticipated growth in Q2-Q4 this year into 2022, lowering US GDP growth in 2021 to 6.1% from 7.0%. ▀ The key global concern is the rise in the number of global Covid-19 cases due to the spread of the Delta variant. For those economies where there are high levels of immunity due to vaccination and prior infection — such as the UK and other advanced economies — we expect the economic effects of the Delta surge to be limited and do not envisage any substantial tightening in restrictions. ▀ But for those economies with slower vaccination roll-outs, the spread of Delta will prove much more challenging. In several places in the Asia-Pacific region for instance, amid a low tolerance approach to the spread of Covid and/or low vaccination levels, renewed restrictions will crimp activity. As a result, we have made broad-based cuts to our near-term growth forecasts for the region. ▀ We expect this near-term shortfall to be reversed in 2022, but there remain notable downside pandemic risks. The sharp rise in Israeli Covid-related hospitalisations points to the risk of tighter restrictions ahead even in well-vaccinated economies. And new variants that further reduce the efficacy of vaccines remain a key concern.