Abstract

Overview: US and China outlook improves ▀ This year looks set to start on a soft note across much of the world due to activity restrictions to bring Covid‐19 numbers down. Despite this, we have raised our world GDP growth forecast for 2021 to 5.6%, from 5.0% last month, on the back of upgrades to our US and China projections. ▀ Slower‐than‐hoped vaccine roll‐out and still‐high Covid‐19 cases in many parts of the world suggest that global GDP growth in Q1 will be even weaker than the fairly lacklustre end to 2020. ▀ But the same time, there are grounds for optimism beyond the very near term. Developments in Israel, where vaccine roll‐out is most advanced, already point to tangible reductions in the pressures on the healthcare system from their vaccine programme. In addition, recent positive trial results should boost vaccine availability as the year progresses. Against this backdrop, we continue to expect a marked acceleration in world GDP growth from Q2 as restrictions begin to ease. ▀ In the US, the Covid‐related rebound will be further boosted by the expected $1.3trn fiscal stimulus, with the greatest effects expected in Q2‐Q3. For 2021 as a whole, we now expect the US economy to expand by 5.9%, markedly higher than our previous forecast of 4.2% and the strongest annual growth since the early‐1980s. ▀ Although disruption from isolated Covid outbreaks may undermine China's recovery a little in the near term, this is more than offset by the stronger‐than‐expected end to 2020. From Q2, the recovery should regain some steam and overall we now see Chinese GDP growing 8.9% this year, up from 8.1% seen last month.

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