World Economic Prospects Monthly

Overview: More lockdowns prompt downward revisions▀ The recent surge in Covid‐19 cases that has prompted key European economies to re‐impose national lockdowns has led us to downgrade our near‐term global GDP forecast. We now expect world GDP to fall 4.2% this year and have lowered our 2021 growth forecast from 5.2% to 4.9%. ▀ Q3 GDP releases show that the post‐lockdown surge in activity was even stronger than expected, but more recent economic and health data confirm that the world has now entered a slower growth phase, with parts of Europe likely to experience a double‐dip in Q4 as their economies go into lockdown again. ▀ In Q4, we now expect eurozone and UK GDP to fall by 2.6% and 3.0% respectively. While sizeable, these falls are much smaller contractions than in Q2 as the restrictions are less stringent and shorter than before. In addition, exporters will continue to benefit from rising demand in the rest of the world, in sharp contrast to Q2. ▀ The second lockdowns in Europe, even if short‐lived, are likely to leave households and firms more wary about the future and braced for further disruption in 2021. While we expect a bounce in Q1 as businesses re‐open, wariness of further troubles ahead may mean a more cautious response than after the first lockdown, in turn subduing spending and hiring decisions. ▀ While the results of the US elections are yet to be finalised, two certainties are evident: the blue wave did not materialize and a gridlock environment now looks likely with Republicans expected to retain control of the Senate. While we expect a $1.5trn fiscal package in early‐2021, the deterioration in the health situation and the slowing economic momentum have prompted us to nudge down our 2021 US GDP growth forecast from 3.7% to 3.6% in 2021 after an expected 3.6% drop this year. ▀ Finally, we have revised our long‐term forecasts to include the effects of a further one degree rise in world temperature — see here for more detail.