The resurgence of COVID-19 in many parts of the world towards the end of 2020, as well as the re-introduction of mobility restrictions to bring it back under control, has had a negative impact on the global recovery. The Euro-zone economy went backwards in Q4, as did the UK’s in November, and in the US and Canada employment has fallen in recent months. GDP growth in Q1 2021 is also likely to be negative or weak in the major advanced economies. Similarly, there has been a softening in emerging market (EM) conditions at the start of 2021. That said, the impact of restrictions on activity has been far more muted than was the case in the first round of lockdowns early in 2020. Our global forecast for 2021 remains unchanged at 5.8%, although this masks a switch from weaker early 2021 growth to stronger growth as the year unfolds. As a result, we now expect global GDP growth in 2022 of 4.6% (up from 3.9%). This more bullish view going forward rests on the roll out of the COVID-19 vaccine currently underway and expectations of further large scale fiscal stimulus in the US.
Australia
In Australia, economic activity continues to rebound strongly – as shown by both NAB’s Business Survey and transactions data. We expect GDP to have risen by a strong 2.5% in the December quarter and the recovery to continue into 2021 – albeit at a slower pace than H2 2020. This should see the level of GDP reach pre-virus levels by mid-2021. Alongside the rebound in activity, the unemployment rate has come down more quickly than expected and we now appear to have passed the peak (7.5%) in unemployment for this recession. We expect unemployment to decline further from here, reaching 5.9% by end-2021 and 5.4% by end-2022. However, despite this rapid recovery, unemployment remains relatively high and we continue to forecast weak inflation, with the underlying measures tracking at just 1.7% by the end of 2022. This warrants ongoing easy monetary policy and fiscal support – particularly if we see further economic shocks. While there is growing optimism around the unfolding recovery, uncertainty remains elevated and at present risks are likely tilted to the downside. Over the next few months, the impact of the expiration of JobKeeper wage subsidy will begin to flow through the economy as will the reversal of the JobSeeker payment. Beyond that, the risk of further virus spread and shutdowns remain a possibility until the vaccine is successfully rolled out.
