Reason for cautious optimism - global economy forecast to grow 4% in 2021


With lockdown still in place in many countries around the world, it may be hard to look to the future and feel optimistic about the prospects for the global economy.

However, data from the World Bank (January 2021) states that the global economy is expected to grow by 4% in 2021. This forecast comes with the assumption that the Covid-19 vaccine rollout is as expected.

It is worth reviewing this data alongside the decrease in the global economy in 2020 which showed a contraction of 4.3% (World Bank, January 2021). This means that the overall size of the global economy would remain slightly under its previous levels, albeit on a more positive trajectory. 

The World Bank take the view that the contraction in the global economy was 'slightly less severe than previously projected' which was down to advanced economies been less badly hit than expected along with a 'more robust' recovery in China. 

They do offer the caveat that should the vaccine rollout be delayed then they only forecast growth of 1.6%, whereas if the vaccine rollout is faster it projects a slight increase in the global economy to nearly 5%. 

Looking at individual countries the World Bank forecasts offer growth of 3.5% in the US in 2021 after a contraction of 3.6% in 2020. 

The contrast is greater in the Euro area with 3.6% growth in 2021 versus a contraction of 7.4% in 2020. 

For Japan the World Bank forecasts 2.5% growth in 2021 versus a 5.3% contraction in 2020.

China offers a particularly positive outlook with forecast growth of 5% in 2021 versus only a 2.6% contraction in 2020. 

If we take the World Bank forecasts by world region then the data is as follows:

  • East Asia & Pacific: 7.4% growth in 2021
  • Europe & Central Asia: 3.3% growth in 2021
  • Latin America & the Caribbean: 3.7% growth in 2021
  • Middle East & North Africa: 2.1% growth in 2021
  • South Asia: 3.3% growth in 2021
  • Sub-Saharan Africa: 2.7% growth in 2021
So, as investors, what are we to make of this data?

In the broadest terms, it suggests steady growth opportunities across the world, subject of course to the usual caveats around vaccine rollout, policy decisions and uncertainties around new virus mutations.

There will equally be variance sector by sector suggesting that one strategy will be the often cited approach of low cost index tracker funds, offering lower risk in the current uncertain market, but potentially lower returns for the more cautious investor. 

As always, do your own research, understand your appetite to risk and accept that there are choppy waters ahead.

Data in this article is from the World Bank, January 2021. 

Comments

Post a Comment

Popular posts from this blog

Explaining Gilt-edged securities (shortened to gilts)

Gilt-edged securities, also known as gilts, are debt securities issued by the government of the United Kingdom.   They are called gilt-edged securities because they are considered to be among the highest quality and most secure investments available, with a long history of low default rates and stable returns. Gilts are issued in a range of maturities, from short-term bills with a maturity of less than one year, to long-term bonds with a maturity of over 25 years. They pay a fixed rate of interest, known as the coupon, which is paid to investors on a regular basis, typically semi-annually. The principal amount of the gilt is repaid to the investor at the end of the term of the gilt. Gilts are issued by the UK Debt Management Office (DMO), which is an agency of the UK government responsible for managing the government's debt. The DMO issues gilts on behalf of the government to finance its borrowing requirements, and sets the terms and conditions of the gilts, including the coupon ra
Read more

What is Financial Intermediation Services Indirectly Measured (FISIM)?

Financial intermediation services indirectly measured, or FISIM, refers to the value of the services provided by financial intermediaries, such as banks and other financial institutions, in facilitating transactions between borrowers and lenders.  FISIM is typically calculated as the difference between the interest rates paid by borrowers and the interest rates received by lenders, minus the costs incurred by the financial intermediaries in providing these services. FISIM is an important concept in national accounts and macroeconomic analysis, as it helps to capture the economic value of the services provided by the financial sector. It is typically included in the measurement of gross domestic product (GDP) and other macroeconomic indicators, as it reflects the contribution of the financial sector to economic activity. There are several ways in which financial intermediaries provide value to the economy through their intermediation services. These include: Information gathering and pr
Read more

The European System of Accounts (ESA) explained

The European System of Accounts (ESA) is a set of rules and guidelines for the compilation of national accounts data in the European Union (EU). National accounts data is a set of statistical indicators that measure the economic activity of a country, including gross domestic product (GDP), national income, and employment. The ESA is designed to ensure that national accounts data is compiled in a consistent and comparable manner across the EU, so that it can be used to compare economic performance between different countries. The ESA is updated periodically to reflect changes in economic circumstances and to ensure that it remains relevant and useful. The ESA consists of a set of principles and guidelines that outline how national accounts data should be compiled, including definitions of key concepts, classification systems, and methods for estimating and measuring economic activity. The ESA also includes a set of sector accounts, which provide a detailed breakdown of economic activit
Read more