Standard Chartered’s economic look ahead for 2021 inevitably centres on how the Covid shock has been unprecedented in modern times.
Governments and corporates alike have suffered profound damage to their balance sheets; repairing them is likely to be a multi-year process. The economic shock in 2020 could have been much more severe without the quick and dramatic response from central banks and governments globally. Having learned the lessons of the global financial crisis, policy makers moved swiftly to limit the downside to their economies.
More Covid vaccines are likely to receive regulatory approval in the coming weeks, although the positive growth impact is unlikely to be fully felt until second quarter of 2021. Given capacity constraints and logistical issues, distribution is likely to be uneven across countries.
Vaccine rollout will allow for the resumption of travel and tourism, supporting the economic recovery. Standard Chartered expects global GDP growth to bounce back to 4.8 per cent in 2021 from a 3.8 per cent contraction in 2020. While the 4.8 per cent growth forecast is well above global average growth over the past 10 years (3.7 per cent), the expected recovery next year will not fully close the output gap created by the Covid crisis. Given their particularly deep recessions in 2020, the euro area and India are unlikely to return to 2019 GDP levels until 2022.
The Bank expects the recovery to strengthen in second quarter of 2021 as investment picks up. Earlier in the year, particularly in Q1, lockdowns and social-distancing measures are likely to continue to constrain activity. As of early December, the US and parts of Europe were still seeing elevated case counts; the economic impact of this is likely to be felt in early 2021.
While the US, the euro area and Japan are likely to recover next year, it is expected that Asia – particularly China and India will lead the global economic rebound. China is likely to continue its strong recovery (forecast 8.0 per cent growth in 2021), having already exceeded end-2019 GDP levels in 2020. Among Asian economies, India has faced the sharpest negative shock, with an expected GDP contraction of around 8.0 per cent in FY21 (year ending in March 2021).
Standard Chartered also expects growth in Sub-Saharan Africa (3.6 per cent), MENAP (2.0 per cent) and Latin America (3.9 per cent) to pick up in 2021; MENAP and SSA experienced less severe growth shocks this year, so their recovery is likely to be muted. In Latam, a healthy pick-up following a fairly sharp decline in 2020 and a few years of soft growth prior to that is expected.
The Bank expects global growth to normalise to 4.0 per cent in 2022. This is roughly in line with the average c.3.7 per cent growth rate of the past 10 years and is an improvement from 2019 (2.9 per cent); heading into this year. Central banks around the world are likely to maintain an accommodative policy stance until growth recovers on a more sustained basis.
Standard Chartered’s growth outlook assumes that vaccines will be rolled out from early 2021 and reach large parts of the population by Q3-2021. It also assumes that major central banks will maintain their accommodative stance, continuing to support the growth recovery.
Furthermore, the Bank assumes inflation will not be a major concern for policy makers in 2021. That said, supply-side inflation is a potential risk supply-chain disruptions and logistics bottlenecks could cause raw-material and transportation prices to rise, potentially complicating the policy path for central banks.
Kaushik Rudra, Global Head, Fixed Income Research and Head, Asia Research, commented: “Central banks globally have cut interest rates and expanded their balance sheets, and governments have delivered large fiscal stimulus packages. While these measures have been effective in containing downside risks to economic growth, they have come at the cost of stretched sovereign balance sheets and increased levels of indebtedness. This large-scale support was the right response to the crisis, but it has depleted the policy cupboard. The concern is that policy makers have few remaining options in case setbacks to the economic recovery require additional policy support.”