Global Economic Outlook November 2021

Global economic recovery is continuing despite the ongoing challenges presented by the pandemic. However, the gap between advanced and developing economies looks set to widen driven by the speed of vaccine roll-out, and variations in the level of government policy invention to support recovery.

2021 / 2022 Growth Projections

The global economy is projected to grow 5.9 percent in 2021 – this is a slight downgrade for 2021 of 0.1% on the April & July IMF forecasts due to the impact of supply chain issues on recovery in advanced economies and the worsening pandemic in developing economies.

The IMF 2022 forecasts remain unchanged from July with global projections for growth at 4.9%. is This forecast anticipates further policy support in the United States and the continued success of global vaccination programs. However, the IMF raise the concern that recovery will not be consistent across countries – with a divergence between advanced economies – predicted to exceed pre-pandemic forecasts by 2024  – and emerging / developing economies who are forecast to lag substantially behind pre-pandemic forecasts.

These forecasts are not without risks. The four greatest global challenges are:

1. Rising Inflation

2021 has seen rising inflation in the United States and some emerging markets and developing economies. This has been largely driven through supply and demand challenges driven by the pandemic and higher commodity prices. The IMF suggest that the risk of inflation will continue if pandemic related supply issues prove to be greater than anticipated and lead to increased price pressures.

2. Worsening pandemic dynamics

The disparity between the vaccine rollout in advanced and developing markets has meant there is a risk of new, aggressive strains of Covid-19 emerging before vaccination on a global scale is achieved. Achieving vaccination of the global population – not just advanced economies – is going to be critical to save lives and secure global economic recovery. To quote Gita Gopinath, the I.M.F.’s chief economist:

“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere.

If Covid-19 were to have a prolonged impact into the medium term, it could reduce global GDP by a cumulative $5.3 trillion over the next five years relative to our current projection.” International Monetary Fund. 2021. World Economic Outlook: Recovery during a Pandemic—Health Concerns, Supply Disruptions, Price Pressures. Washington, DC, October.

3. Climate change

Without global agreements on climate change and reducing rising global temperatures there is a risk of ever-increasing divergence between advanced and developing economies. The developing world will bear in the brunt of the impact of climate change with limited economic resources to counter-act the consequences.

4. Rising Energy Costs

After falling dramatically in 2020, when the pandemic drove and drop in demand, energy prices have increased at a pace over the last month and are now above pre-pandemic levels. High wholesale energy prices are making their way to retail prices for households and producers, though at a varying degree and pace across countries, with substantial potential knock on effects for both the domestic and commercial markets.

Conclusion

The uncertainty around these challenges could have an impact on IMF current forecasts – so although the economic outlook over the next two years is optimistic it is critical to understand that it is far from certain.

Author: Mark Smith

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