Third quarter 2021 global macroeconomic outlook

November 2021

The global growth rebound in the first half of 2021 was partially interrupted by the Delta variant, however the IMF is forecasting strong growth this year and next as economies recover from pandemic related lockdowns.

  • The IMF forecasts final global GDP to come in at 5.9% in 2021 and 4.9% in 2022; well above the past ten-year average of 2.9%.
  • In advanced economies, GDP is projected to rise 5.2% in 2021 and 4.5% in 2022. These levels are well above potential as economies re-open and vaccination progress is made. The 2021 forecast is 0.4% lower than the prior forecast, due to continued supply chain issues. The US is expected to fare better this year, with a forecasted strong 6.0% growth. The euro-area is expected to grow 5.0% in 2021 and 4.3% in 2022, while the Japanese economy is expected to grow 2.4% in 2021 and 3.2% in 2022.
  • Growth projections have been revised slightly higher by the IMF for emerging markets this year (6.4% versus 6.3%) and lowered for next year (5.1% versus 5.2%). China is expected to see 8.0% growth in 2021 and return to its pre-pandemic trend of 5.6% in 2022.
  • Globally, inflation is projected to be well above long-term averages in 2021, consistent with rising economic activity. Inflation in most developed economies is forecasted to be below 3.0%, however, strong growth in the US is expected to be accompanied with higher inflation in 2021 and 2022.

In an effort to stem the expected significant declines in economic activity, fiscal and monetary authorities across the globe responded with immediate and aggressive stimulus measures.

  • US fiscal and monetary responses have been unprecedented. Fiscal authorities released over $3.5 trillion in directed stimulus in 2020. The Biden administration immediately implemented another COVID-19 response of $1.9 trillion in additional spending and support for unemployment and vaccination efforts. The new administration is also proposing an ambitious spending plan, to be funded partially by comprehensive corporate tax reforms and income tax changes; the proposals are the Infrastructure Investment & Jobs Act (~$1.0T) recently signed into law, and a yet unnamed social infrastructure budget outline (~$1.75T) to address childcare, climate change, and other social goals. The scale of the latter proposal may still undergo significant legislative changes. Monetary policymakers are actively
    considering the removal of accommodative measures. They recently announced a slowing of purchases related to the quantitative easing program and are considering raising policy rates in late 2022 if conditions continue to improve.
  • While not all countries have sufficient space to launch ambitious fiscal countercyclical spending programs like the US, the monetary policy in advanced economies remains exceptionally accommodative as central banks engage in targeted quantitative easing and maintaining near-zero bound policy interest rates. Much European and Japanese sovereign debt continues to offer lower yields than US debt, with some tenors pricing in negative nominal yields.
  • Substantial upward growth revisions for the US economy and rising inflation expectations have put pressure on emerging market monetary policy makers who must navigate between supporting domestic economic recoveries and risking currency depreciation as US interest rates rise. In some emerging market economies, policy makers have been raising policy rates to combat inflationary risks.

We acknowledge the wide breadth of new concerns presented by the pandemic, and among those we are considering are the following: 1) Some economies may suffer COVID-19 resurgences, resulting in weaker growth and potentially a need to re-deploy restrictions; 2) Consumers permanently, or for an extended period, changing economic behavior; 3) Unemployment could remain elevated due to a significant number of companies not surviving the economic downturn and the unemployed hesitant to return to work; 4) Virus-related fears could continue to disrupt global supply chains and the future of globalization; 5) and Inflationary pressures remaining longer than expected.