11 Oct 2020
Posted in Business Fundamentals
Major recessionary economies expected to grow at a modest pace in 2021, says GlobalData
As major economies are pushed into recession due to the impact of the COVID-19 pandemic, the global economy is forecasted to contract by 3.9% in 2020, according to GlobalData, a leading data and analytics company. However, if countries continue to gradually lift lockdowns and ease social distancing measures, the global economy is projected to recover gradually and grow at 5.3% in 2021.
Bindi Patel, Economic Research Analyst at GlobalData, says: “Some of the economies that has been worst hit by the COVID-19 pandemic are Mexico, Argentina, Italy, the UK, France and South Africa. Mexico’s economy is forecasted to contract by 10.09% in 2020 after it posted a steep GDP decline of 18.7% (YoY) in Q2 2020, while Argentina’s economy is forecasted to contract by 10.69% in 2020 after the country’s GDP declined by 17.1% (YoY) in Q2 2020. Other countries which are forecasted to contract deeply in 2020 include the UK (10.29%), Italy (10.16%), France (9.64%) and South Africa (8.66%).
“On the other hand, the countries that are expected to see the best growth in 2021, assuming the global economy gradually recovers from the pandemic, include India which is forecasted to grow at 8.45%, followed by China (8.07%), France (6.94%) and the UK (6.61%).”
To cushion the impact of the pandemic, several governments in the US, Japan, Italy and Germany have approved of aggressive fiscal and monetary stimulus measures. In July 2020, 27 Member States of the EU agreed on a fiscal stimulus worth €750bn – around 5.3% of the EU’s GDP. The US also announced a stimulus package amounting to 23.26% of its GDP, India announced a package amounting to 9.73% of its GDP, and Japan announced a package amounting to 42.56% of its GDP.
Bindi Patel, Economic Research Analyst at GlobalData, says: “Unplanned stimulus expenditure is forecasted to increase the net government borrowing as a percentage of GDP of the US from -5.8% in 2019 to -15.4% in 2020. Similarly, other major economies are expected to exhibit similar trends, including the UK (-2.1% in 2019 vs -8.3% in 2020), Italy (-1.6% vs 8.3%), Germany (1.5% vs -5.5%), and Japan (-2.8% vs -7.1%).”
Patel notes: “Although global governments are spending billions of dollars, in order to mitigate the impact of the pandemic, the solution is neither permanent nor long-lasting. With large stimulus measures the fiscal deficit and debit ratios are only set to significantly widen in the years 2020-2021. Moreover, developing countries are bound to face challenges on multiple fronts such as dwindling remittances, subdued capital flows, weak healthcare systems and increasing amount of gross debt.
“The recovery road in 2021 remains dicey since its highly subject to the spread of the overall pandemic across the globe. Assuming, there will not be a second wave of infections, major economies such as the US, France, Japan and China are expected to bounce back. However, it may be a challenge to return to growth at pre-pandemic levels as this relies upon a reduction in infection spread, removal of all restrictions within and outside international borders, resumed consumer spending and economic activity in informal sectors – especially those of developing nations – and the revival of overall trade and global supply chains.
“Although major economies are expected to bounce back by 2021, controlling the pandemic continues to be the need of the hour. The government should continue implement suitable fiscal and monetary measures in order to revive the affected economies along with global coordination and cooperation. However, if any reforms are not adequately implemented it will not just be economic growth that is a challenge in the years to follow, but issues such as bankruptcy, unemployment and sustaining economic activity for households and firms will be a hurdle to overcome.”