Economic stormwatchers might have been accused of spreading a bad April Fool’s joke at this time last year. It was no joke; they didn’t know how right they were. In almost every way, the fallout of the storm we know as COVID-19 could not have been worse. Or as long: it just kept coming back, again and again, in waves. Is it true—could it really be passing?
We could all be forgiven for a little—or a lot—of cynicism. Our lives have been so radically altered that this episode will leave a permanent mark on this generation. No moreso than for those most affected: first-time workers, or hopefuls; families with young children; workers in devastated parts of the service sector; frontline workers; and the list goes on. Everyone wants to leave this nasty phase in the dust; but can we? Will we?
Well, we’re getting a lot of help. First, pandemic infection rates are a lot lower than just a few weeks ago. Second, there’s growing evidence in medical circles of herd immunity. Finally, as vaccine rollouts increase, confidence in the economy’s ability to return to normal will rise.
Lower uncertainty has the strong potential to unleash a powerful force in the economy: the massive pent-up savings accumulated over the months when there simply was a lot less to spend on. Once consumers reach the point of willingness, these funds could hit the economy like a tidal wave.
There’s more: now that U.S. President Joe Biden’s administration’s US$1.9 trillion stimulus program is official, it’s being written into forecasts (see our March 25 commentary). The plan calls for US$750 billion of this to hit the streets mere weeks from now, and economists are unanimous that U.S. growth will in 2021 ring in at the 5%-6% level.
In response, we have raised the forecast for U.S. growth in 2021 to 6.3%, a boost of over two percentage points from the release of our last outlook. That’s a massive upward revision by any estimate, and in spite of Buy American fears, is having a profound effect on global growth. Forecasts for other key nations have been revised up as a result, and upside risks to growth are now more likely.
As a result, in our new spring 2021 Global Economic Outlook, EDC Economics has increased the call for global growth to 6.4% for 2021, with a still-robust 5.4% forecast for 2022, as stimulus, together with rising private sector activity, spills into next year.
The improved outlook for the U.S. economy will anchor the forecasts we see for the rest of the world, and will provide a boost to certain key economies. The industrialized world is forecast to grow by 5.2%, mostly making up for last year’s losses, but with enough in the tank to see a further 4.1% in 2022.
Emerging economies will also benefit. China’s early rebound suggests strong support for its 10.8% bounce this year, while India, a little slower off the mark, is expected to see a whopping 12.3% pop. Overall, emerging markets look to add an impressive 7.1% this year, with 6.2% more to come in 2022.
Following a decline of 5.3%, Canada is forecast to see a rebound of 5.5% this year, followed by above-average 4.1.% growth in 2022. Average forecasts were revised up smartly in the wake of the U.S. stimulus news, and have created a buzz of conversation about accommodating growth possibilities this year and next.
Growth has shaken up commodity prices already. Copper, facing short-run constraints, has spiked in recent days and is now expected to average $8,790 per tonne, far above initial expectations. Uncertainty is keeping precious metal prices high, but, hey, should fade somewhat in 2022. Oil and gas prices are perhaps the biggest surprise. Initially expected to be weaker than usual, higher growth and short-run supply constraints have pushed our forecast for West Texas Intermediate crude to just under US$57 for this year, before edging down to US$54.68 in 2022.
One of the key signs that a growth mentality is setting in is the nascent focus on inflation. With an ocean of available liquidity and growth on the rise, there’s increasing worry that the inability of getting production up fully will set off price pressures that we haven’t seen in decades. In short, the global economy has the capacity to handle the ramp-up in activity, but there are and likely will be constraints in the short run, which will temporarily lift prices above target growth. As long as these increases don’t get entrenched into expectations, inflation should remain contained.
Commodity price increases have given lift to the Canadian dollar, which is forecast to average US$0.79 this year and next.
The bottom line?
Big growth is hitting the U.S.—and global—economies in mere weeks. This is the best short-run news since the pandemic hit a year ago. All being well, the fiscal boost should encourage private spending, finally lifting us from COVID-19’s quagmire. Enjoy!