What Lies Ahead: 2021 Economic Projections and the Year in Review
As we look back on a historic year, we trace the notable events of 2020, along with growth forecasts for the year ahead.
What Lies Ahead? 2021 Global Economic Projections
With over 1.4 million deaths worldwide, COVID-19 has impacted nearly every corner of society.
Yet, hope seems suddenly near. Crucial vaccine developments are emerging, with many of the 320 vaccines in advanced trials. Still, questions remain around the timing and effectiveness of the potential vaccine. With this in mind, the International Monetary Fund (IMF) projects that this year, global real GDP will fall –4.4%, bouncing back 5.2% in 2021.
As we look back on a historic year, this infographic from New York Life Investments traces the notable events of 2020, along with growth forecasts for the year ahead.
2020: Year in Review
From a deadly virus to U.S. elections, how did we get to where we are now?
Since COVID-19 was declared a pandemic, $12 trillion in global fiscal response helped stabilize the economy. Despite financial markets facing their sharpest drop in 30 years, the S&P 500 rebounded in record speed—recovering losses in under four months.
In April, oil prices dropped into negative territory for the first time ever. The combination of both a demand shock and supply shock led oil futures to fall to -$37.63. Since then, oil prices recovered modestly, hovering close to $45 in November.
In another historic event, wildfires ravaged through the West Coast of the U.S., burning five million acres across Oregon, California, and Washington. Meanwhile, COVID-19 cases continued to climb. Global reported cases exceeded the 25 million mark by September.
Finally, on November 16, Moderna announced that its COVID-19 vaccine was 94.5% effective, just days after the 2020 president-elect, Joe Biden was announced.
Despite the number of record-breaking incidents over the year, the tech-dominated S&P 500 held steady. Here is how key economic figures have materialized against the backdrop of 2020:
1. Government Debt
Government debt rose 20% relative to GDP in advanced economies, while debt has grown at a slower pace in emerging market and low-income countries.
2. Inflation
Overall, inflation was lower than pre-pandemic levels, sitting at around 1.5%.
While commodities and medical supplies saw their prices rise, weak global demand for overall goods cancelled out these inflationary effects.
3. Sector Performance
Service sectors were hit among the hardest as social distancing measures were enacted to stave off the pandemic.
In the first half of 2020, accommodation, arts, and entertainment sectors fell close to 15% compared to 2019. Meanwhile, banks were cushioned with cash reserves in the event of unexpected risks, breaking roughly even in year-over-year growth.
While the economy has encountered numerous challenges, the IMF expresses cautious optimism for the year ahead.
2021: Global Growth Outlook
Since the IMF’s June projections, economic growth forecasts have somewhat improved. Primarily, optimism is being driven from Q2 GDP growth that exceeded expectations.
By contrast, pre-pandemic projections for 2020 and 2021 were 3.3% and 3.4%, respectively.
Over 2020, China enacted several strict measures to contain COVID-19 early in the outbreak, a key factor behind its economic momentum. Meanwhile, India is projected to rebound 8.8%—higher than any other country in 2021, according to IMF-reported countries.
While several factors remain uncertain, what will pave the way for a global recovery?
Analysis of a Successful Global Recovery
Growth projections are improving, but economic success will hinge on these three layers.
To prevent further unwanted outcomes, it will be essential that policy support is not withdrawn too soon.
The Road to Recovery
With these factors in mind, how could global conditions transform in the months ahead?
In the face of these obstacles, the health of the global economy rests on sufficient consumer demand, capital flows and COVID-19 containment. With news of vaccine developments underway, the outlook is appearing a bit brighter.