World Economic Prospects Monthly

Overview: Coronavirus variants raise near‐term concerns▀ While vaccination roll‐outs will pick up speed in the coming months, high global Covid‐19 case numbers and the threat from the spread of more transmissible variants of the virus have prompted us to lower our 2021 world GDP growth forecast for 2021 slightly from 5.2% to 5.0% after an estimated 3.9% fall in 2020 . ▀ The start of Covid‐19 vaccination programmes has provided light at the end of the tunnel with respect to the prospect of controlling the pandemic. But hopes that the start of inoculations will lead to an imminent relaxation of restrictions has been dampened somewhat. ▀ While the slow pace of vaccinations to date has disappointed some, we do not think this is grounds for panic. Initially slow progress is to a large extent down to teething problems and near‐term constraints which should ease, particularly if other vaccines are licensed in the coming weeks and months. ▀ The bigger risk is the possibility of tighter restrictions to contain the UK and South African coronavirus variants that spread far more easily. The former mutation has now spread to around 50 economies and around a third have reported community transmission. ▀ Our global GDP growth forecast downgrade for 2021 largely reflects a more cautious assessment of the outlook for H1, particularly in Europe and other advanced economies where restrictions looks set to be extended or increased. ▀ But while the recovery path for the global economy is likely to be bumpy and risks remain elevated, we still think this year will see strong growth, by pre‐ as well as post‐ GFC standards. Some emergency fiscal support measures will end, but policy will remain supportive. Indeed, by taking control of the Senate, US President Biden may be able to pass more ambitious fiscal plans.