Global economic recovery to be more sure-footed from mid-2021: Fitch

KUALA LUMPUR: The global economic recovery will strengthen and become more sure-footed from the middle of next year as coronavirus vaccines are rolled out and social distancing starts to unwind, Fitch Ratings said.

In its latest Global Economic Outlook (GEO), Fitch now expects world gross domestic product (GDP) to fall 3.7 per cent in 2020 compared to 4.4 per cent in its September GEO.

This is despite the expectation of renewed falls in GDP in the fourth quarter of 2020 in the eurozone and the UK – following the recent tightening of restrictions,

It also reflected the fact that global activity rebounded much more quickly than expected in the third quarter, the rating agency said.

“The global recovery path is proving bumpier than expected as the second wave of the virus prompts new restrictions, but the vaccine news is very positive for the economic outlook over the next two years,” said Fitch chief economist Brian Coulton.

Fitch has revised up its 2021 global growth forecast to 5.3 per cent from 5.2 per cent previously with stronger growth through the second half of 2021, partly offset by weakness in the immediate months ahead.

The US’ GDP is now projected to expand 4.5 per cent from 4.0 per cent and China by 8.0 per cent (up from 7.7 per cent) but eurozone growth is now forecast at 4.7 per cent (down from 5.5 per cent) as renewed lockdown measures take their toll on activity over the winter months.

Fitch has also revised up its global growth forecasts for 2022 to 4.0 per cent from 3.6 per cent, reflecting the anticipation of reduced social-distancing disruptions once immunisation programmes have broadened.

“Our 2022 forecasts now also incorporate expected grant disbursements from the EU’s Next Generation EU recovery fund. These are likely to provide a sizeable boost to public investment and we have raised our eurozone growth forecast for 2022 to 4.4 per cent from 3.2 per cent in the September GEO.

Developments in the past few months have thrown more light on the unprecedented economic impacts of the pandemic.

Fitch said strong and faster-than-expected recoveries in the third quarter had illustrated the boost to activity from re-opening, even if a true “V”-shaped rebound remained elusive.

While the recent second wave of lockdowns is not compressing activity anywhere near as sharply as in April, base effects will lift sequential growth markedly when restrictions are eased in 2021.

“The role of unparalleled macro policy easing and sovereign support in cushioning the impact of the pandemic has also become clearer.

“Massive policy easing has been aimed at providing the private sector with a ‘bridge’ to the other side of the health crisis. With the vaccine news providing a clearer end-point, it seems likely that further support will be extended in the near term,” Coulton said.

Vaccine rollout problems or delays are the key downside risk to the forecast and could result in repeated circuit-breaker restrictions and extensive social distancing through 2021, weighing heavily on GDP.

In the next couple of months there could be a sharper-than-anticipated weakening in US activity from tighter social-distancing restrictions, leading to a fall in GDP in the first quarter of 2021.

“The potential disruption from a failure to agree a free-trade deal between the UK and the EU could also have a more severe impact than the one incorporated into our UK GDP forecasts,” Fitch said.

Source: NST