Fitch Ratings revised its outlook on global economic growth upward as countries begin rolling out vaccination programmes to fight Covid-19.
The global economy is now expected to contract 3.7 per cent in 2020 compared to an earlier prediction of 4.4 per cent, the ratings agency said in its latest global economic outlook on Monday. In 2021, the global economy is expected to grow 5.3 per cent, up from an earlier forecast of 5.2 per cent with strong growth predicted in the second half of the year.
That compares with a 4.4 per cent contraction from the International Monetary Fund for 2020, followed by a 5.2 per cent expansion of economic output in 2021.
The UK will begin rolling out the Covid-19 vaccine developed by Pfizer and BioNTech on Tuesday, the first western country to begin vaccinating its population against infection from the coronavirus.
The US and EU countries are also expected to roll out vaccination programmes in the coming weeks after securing approval from regulatory authorities.
"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,” Brian Coulton, chief economist at Fitch Ratings, said.
The coronavirus pandemic has wiped out millions of jobs and pushed the world economy into a steep recession.
The US, the world’s largest economy, will contract 3.5 per cent in 2020 and will expand by 4.5 per cent in 2021 and 3.5 per cent the following year, according to the ratings agency's estimates. China is expected to grow at 8 per cent in 2021 and 5.5 per cent in 2022.
Fitch's forecast for the eurozone, however, is lower for 2021 at 4.7 per cent, compared to 5.5 per cent previously as renewed lockdown measures in many countries impact economic growth. The region is expected to grow at 4.4 per cent in 2022.
The UK's growth is forecast at 4.1 per cent and 3.6 per cent in 2021 and 2022 respectively after shrinking 11.2 per cent this year.
Japan’s economy, the world's third-largest, will contract 5.3 per cent in 2020 and grow an estimated 3.5 per cent in 2021 and 1.5 per cent in 2022, according to Fitch Ratings.
Growth in emerging markets, which includes Brazil, Russia, India, China, South Africa, Mexico, South Korea, Indonesia, Poland and Turkey, is estimated to contract 1 per cent this year but to expand 6.6 per cent in 2021 and 4.7 per cent in 2022.
Oil prices are forecast at $41 per barrel this year, $45 per barrel next year and $50 per barrel in 2022.
“Strong and faster-than-expected recoveries in the third quarter of 2020 illustrated the boost to activity from re-opening, even if a true 'V'-shaped rebound remained elusive,” the ratings agency said.
“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.”
Aggregate household disposable incomes have remained broadly stable in Europe and have increased significantly in the US, owing to huge fiscal transfers, it added. Unemployment rates in Europe have risen only modestly due to the extension of massive furlough schemes, and small business failures have yet to surge.
Vaccine rollout problems or delays, which could result in extensive social distancing continuing throughout 2021, are the key downside risk to the forecast, it said.
“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.”
It also warned that a failure by the UK and EU to agree on a trade deal "could also have a more severe impact than the one incorporated into our UK GDP forecasts”.
Fitch Ratings also expects governments to continue supporting economies with further short-term stimulus.
"We anticipate a further $1 trillion (nearly 5 per cent of GDP) in fiscal stimulus measures in the US in early 2021 including further extensions of unemployment insurance and the UK government has recently rolled forward its furlough programme to end-March 2021. The French government has also announced an additional fiscal easing in recent months," the ratings agency said.