The gradual reopening that the entire world is experiencing seems to make us forget all those economic problems that businesses have suffered during periods of lockdown. In reality, it will be precisely in these months that the economic consequences of the pandemic will be felt more: some businesses will not reopen, others will try hard but only those with strong economic solidity will be able to save themselves from the crisis. Therefore, it is interesting to understand what the economic forecasts will be for the next quarters in the developed countries. At the same time, the economic prospects for each country will be different because the pandemic has spread across the world several times and at separate times of the year. In fact, the Covid-19 pandemic broke out in China in January 2020 and then gradually spread to most of the other countries around the second half of February to finally hit emerging ones as well. The economic damages that the pandemic brought with it was felt more strongly in Europe than in China, where companies and offices have remained closed as usual due to the New Year holidays. Due to this series of coincidences, the red dragon suffered less economic damage than it would be otherwise.
On the side of the economic recovery, the first quarter of 2021, which performed weakly due to the persistence of the virus, will be followed by strong rebounds supported by monetary and fiscal stimulus policies. For instance, the EU Parliament just approved the Recovery fund, which moves towards a more supportive approach leaving austerity behind. In any case, a return to normal is estimated only starting from the third and fourth quarter of 2021 when the vaccine would be largely distributed. This would lead consumer to regain confidence, improving the economic environment. On the one hand, if consumers and businesses take a cautious stance into the new year, keeping most of their money as a precaution, we can only expect a rise in consumer price inflation from 2022 onwards. On the other hand, if companies spend what they accumulated in 2020, consumption and investments will be destined to recover faster than those of a classic post-recession phase, thus generating a surprisingly robust rebound.
Keep in mind that global economies rarely move hand in hand: a synchronous global recovery, where growth in developed and emerging markets accelerates in the same year, has only occurred a dozen times in the past 40 years, the most recent in 2017. In fact, if attention is shifted to Asia, the prospects for recovery are certainly better than those in Italy, as China has certainly contained the pandemic better so that the eastern economy is on the path of a steady recovery. If we take the United States into consideration, that is a different matter. Since the Trump administration has not been able to develop a coordinated national plan to combat the pandemic, it seems necessary to wait for what Biden will put into practice in the coming months, especially regarding those sectors in difficulty such as transport and tourism. With the uncertainty that the election of the new president of the United States has brought, it is not easy to make reliable economic forecasts. The Invesco report about the global economic outlook for 2021 can help us better understand the future figures of the economic rebound. As written in the report, the US real GDP is expected to grow 3.8% in 2021, with inflation still low at 2.2%. As for the European economy, it is likely that it will continue to be supported by favorable monetary conditions and the pro-growth attitude of the BCE. For 2021, real GDP should grow by 4.5% with inflation of just 1%. While in the UK, is reported in the PwC’s economic forecast for 2021. Scenarios can be characterized by either a slow recovery or a rapid recovery, where expected annual GDP growth rates swing from 2.2% to 4.8% in 2021, accelerating from around 5.1% to 6.3% in 2022. If the recovery is rapid it is believed that 2021 will be characterized by a strong recovery, where most of the production loss caused by the first lockdown would be regained. But if it were not the UK economy would have to wait at least a couple of years before reaching pre-lockdown production level. Although, the second scenario is less likely to happen.
The year we leave behind, dominated by the pandemic and lockdowns, brings us to a 2021 characterized by the distribution of effective vaccines and the economic stimulus effects promoted by central banks and governments around the world. The pandemic is expected to have long-term negative effects on the global economy, with growth slowing likely to continue over the next decade, caused by insufficient investment and a lack of skilled workforce. Politicians must continue to support the recovery, gradually shifting from income support to growth enhancing policies. In the long term, policies to improve health, education services, and digital infrastructure will help mitigate the economic damage caused by the pandemic. Also, institutional reforms will help to not only to stimulate organic growth but also to reduce poverty and promote shared prosperity.