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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
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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
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Overview: Recent economic strength will not last ▀ Recent data confirm that the initial post-lockdown phase of the recovery has been robust and points to a record-breaking rise in GDP in Q3 Nonetheless, there are already signs that some sectors are beginning to lose momentum Given this, and the lack of tangible medical progress towards overcoming the pandemic, we have cut our forecast for global GDP growth in 2021 to 5 4% (from 5 8% seen last month) after an expected 4 4% drop this year ▀ Recent monthly economic data have surprised to the upside, so we now expect the huge Q2 fall in global GDP to be broadly reversed in Q3 Even so, the level of GDP this quarter will still be over 4% below the Q4 2019 level, a bigger fall than the peak-to-trough decline in global GDP during the global financial crisis ▀ Beyond Q3, growth looks set to slow notably After initially bouncing strongly, retail sales growth has eased, perhaps even starting to contract This may partly reflect compositional changed to households spending patterns as some services re-open ▀ Even so, our aggregate advanced economy consumer sentiment measure fell for a second month running in August, suggesting some caution among households This will be exacerbated by the ongoing unwinding of emergency fiscal support measures for households With banks already expecting to tighten credit standards and some firms beginning to repay some of the money that they borrowed during lockdown, we expect the investment recovery to be quite weak ▀ Although we still expect average q/q global GDP growth to broadly match that seen during 2010 ? the best year since the global financial crisis ? we now see GDP expanding by 5 4% in 2021, 0 4pp lower than a month ago This partly reflects the fact that we now assume a Covid-19 vaccine will not be in circulation until the middle of next year, about six months later than we had previously assumed, resulting in a more prolonged period of social distancing measures
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Overview: Renewed restrictions dampen prospects▀ The global economic recovery has now entered a second, slower growth phase With many economies, particularly in Europe, needing to reimpose some restrictions on activity in the light of rising Covid‐19 cases, we have again nudged down our forecast for global GDP growth next year, from 5 4% to 5 2% ▀ In response to recent GDP releases and some other timely indicators, we have edged up our growth estimates for Q2 and Q3 2020 a touch at a global level But this improvement has been broadly offset by downward revisions to our GDP growth forecast for Q4 2020 and early next year ▀ True, retail sales and consumer confidence data have recently been encouraging in the advanced economies as a whole But it is unclear whether the strength of the former reflects households spending more freely or continued substitution of spending away from services towards goods as a result of restrictions to curb the spread of Covid‐19 ▀ It is also uncertain as to the extent that households and firms will adjust behaviour in response to the recent resurgence in the number of Covid‐19 cases in many parts of the world Expectations of further curbs to come or a slower return to normal may also prompt households and firms to become more cautious In this respect, the renewed, albeit small, fall in the global services PMI in September provides pause for thought ▀ Overall then we have become somewhat more cautious about the pace of the expansion as we move into Q4 Growth over the next few quarters is still expected to be similar to that recorded during the post‐global financial crisis recovery But this is conditional on very supportive fiscal and monetary policy as well as the avoidance of a widespread return to lockdown‐style conditions Thus, risks to our baseline forecast remain firmly skewed to the downside
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