The world economic output is set to exceed the $100 trillion mark for the first time in 2021, two years before the previous forecast, the Centre for Economics and Business Research has said.
The continued economic recovery from the pandemic will drive global economic growth, but the emergence of the Omicron coronavirus variant is a reminder that the pandemic is still a threat, even in highly-vaccinated societies, the London-based research institute said in its World Economic League Table report.
“A year ago, we hoped that the economic effects of the pandemic would wear off relatively quickly. And in one sense they have,” said the CEBR. “We now expect world GDP [gross domestic product] in dollars in 2022 to be higher than we did pre-pandemic and to reach over $100tn for the first time.”
The pace of the recovery is much stronger and there is “substantially more momentum” going into 2022 than the think tank had previously envisaged.
The global economy, which tipped into its deepest recession last year, has bounced back strongly from the pandemic-driven slowdown. The International Monetary Fund expects the world output to expand by 5.9 per cent this year and 4.2 per cent in 2022. CEBR, however, expects global economic growth of 4.2 per cent next year, up from 3.4 per cent it predicted a year ago.
However, the emergence of more virulent Omicron variant of Covid-19 and subsequent pandemic-related restrictions in parts of Europe and elsewhere have raised questions about the pace of economic momentum going forward.
Inflation is another key issue for the global economy going forward. This year has been one of supply constraints and rising inflation, with shortages of commodities, finished goods, shipping space and fossil fuels feeding into inflation in the second half of 2021.
While some of these inflation sources cooled in the last weeks of the year, there are signs that wage inflation is accelerating around the world.
“The key question is whether inflation will largely subside of its own accord, with a modest degree of policy tightening and possibly a medium-sized fall in asset prices (of about 10 per cent to 15 per cent) but little impact on GDP, or whether bringing it down it will require something close to austerity,” CEBR said.
The consultancy expects the push for greener economy and renewable and cleaner energy capacity boost to shrink consumer spending by about $2tn a year on average through 2036, as companies pass on the cost of decarbonising investments to consumers.
“It is probably prudent to conclude that the drive for net zero will at least initially add to consumers’ costs,” the CEBR said. “If we assume that roughly half of the total cost of decarbonising investment is passed on to consumers, this would suggest that real consumer expenditure will be reduced by about $2tn per annum on average over the next 20 years.”
The International Energy Agency estimates that global energy currently stands at about $2tn per year, about 2.5 per cent of global GDP. Under a scenario in which the energy sector achieves net zero emissions, investments need to rise to $5tn, or 4.5 per cent of global GDP, by 2030 and stay there until at least 2050, CEBR said citing IEA data.
In its latest global economy ranking, CEBR predicted that China will overtake the US in 2030 to become the world’s biggest economy in dollar terms, two years later than the forecast in last year's rankings.
It expects China's economy to grow 5.7 per cent annually from 2020 to 2025, then by 4.7 per cent per year between 2025 and 2030 and 3.8 per cent annually in the 2030-2035 period.
“These are very similar rates to those in our forecasts last year. But faster growth in the US means that China is now forecast to overtake the US and become the world’s largest economy in 2030 rather than 2028 as we had forecast last year,” the report said. “This is still three years earlier than our pre-pandemic prediction.”
India, which is expected to overtake France next year to occupy sixth position, will become the third-largest economy in 2031. Germany will stay pegged to the fourth spot next year but will lose a place to Japan in 2031 to become the fifth-biggest economy in the world. It will regain the lost place by 2036 to push Japan into fifth place.
Russia is set to become the 10th largest economy by 2036, after Brazil and Indonesia in ninth and eighth spots, respectively, according to the CEBR.
Saudi Arabia will be in the 17th spot, while the UAE will be the world’s 33rd largest economy, a place behind Israel and two places ahead of Iran in 2036, as per the index.