It wasn’t supposed to be this way. 2020 began on an optimistic note with the promise that a fresh start would help. But just days later, COVID-19 hit China and within weeks became a worldwide pandemic. Deadlines for defeating the coronavirus have come and gone, dashing hopes repeatedly. One year on, infections are rising, and new restrictions have again clamped down on the economy. “Double-dip” is coming back into street-speak. With this poor start, how will the world economic outlook fare?
First and foremost, it all hangs on the pandemic. Current infection numbers are discouraging. Hopes are pinned almost squarely on the vaccination programs. With two vaccines testing at a 95% efficacy rate, and a third with impressive numbers, we’re ahead of where we thought we’d be last fall. Broad distribution is expected by mid-2021. If all goes well, the move back to normal should power growth through the second half of the year and into 2022.
How can we be so sure? First, much economic activity has already discovered how to work around COVID-19. A large majority of workers around the world kept working full time, and a large portion of those who didn’t have returned to work. This has helped to power an impressive rebound in retail sales, a sign that the consumer─a dominant force in most economies─is alive and well.
Second, there was ample evidence of pent-up demand ahead of the pandemic’s onset. Third, there has been a groundswell of mid-pandemic, pent-up demand. Without nearly the range of consumables to spend on, those with jobs have socked away trillions in savings, electing to park them in spending-ready bank accounts. Businesses have done the same. To the extent possible, stimulus cheques have likely been stashed away, too. All this points to capacity to unleash spending when conditions improve.
Fourth, with all the challenges hitting international trade, like anti-globalization, unanticipated new tariffs, fear of cross-border infection and populism─which often breeds a misguided protectionism─exports are also on the up-and-up. Globally, merchandise trade is in the throes of a V-shaped recovery.
Renewed lockdowns haven’t changed fundamental conditions, but they have delayed things, changing the shape of the overall forecast. As such, Export Development Canada’s Economics’ team’s latest Global Economic Outlook expects growth that is somewhat softer this year than initially expected, with the first half of 2021 bearing the brunt of the weakness. We have revised 2021 growth down to 5.7% to reflect this. The second-half rebound will show up more in 2022, where we have revised world growth up to 5.2%.
Emerging markets will outperform the developed world, growing 6.5% this year and 6% in 2022, powered in good part by China’s rapid and resilient recovery. The developed world will be held back by punishing lockdowns, which in certain cases are producing a red-ink first quarter. Incidentally, despite perceptions, the United States’ economy has outperformed the developed-world average, declining by a more modest -3.4% last year and staging a decent second-half recovery, which will lift 2021 growth to 4.1%.
Canada’s experience has been more turbulent, although the decline in 2020 wasn’t nearly as deep as initially feared. From an estimated drop of -5.6% in 2020, Canada will rebound by 4.4% in 2021 and by 4% next year.
World prices for commodities are also faring better than initially expected, fed in part by China’s nascent voracious demand. Oil and gas prices are currently almost fully back from the abyss, although supply conditions will keep things suppressed as the economy recovers. Base metal prices will be resilient over the short term, and precious metals are up due to uncertainty.
Fiscal and monetary policy are generally expected to remain in stimulative mode this year, hanging in until there’s more assurance about growth. The withdrawal of public spending measures will likely begin toward year-end and into 2022, but monetary tightening is unlikely before 2023.
The Canadian dollar will drift upward slowly over the forecast horizon, averaging US0.76 cents this year and US0.77 cents in 2022.
The bottom line?
As the proverb goes, hope deferred makes the heart sick. Serial disappointment is weighing on the economy, testing patience, provoking dissent. But the proverb continues: desire fulfilled is a tree of life. Fundamentals still strongly suggest a return to growth─in time to keep hopes from getting snuffed out. It couldn’t come soon enough.