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. 

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