While growth momentum is slowing with the spread of the Delta variant of COVID-19, the pandemic is unlikely to derail global economic expansion, according to British information provider IHS Markit, which recently said that after a 3.4 per cent decline in 2020, world real gross domestic product (GDP) is projected to increase by 5.7 per cent in 2021 and 4.5 per cent in 2022, led by strong recoveries in consumer spending and business investment.
Global real GDP reached a new high in the second quarter of this year, completing a year-long recovery from the COVID-19 recession and Western Europe rebounded from its double-dip recession, while the United States and mainland China sustained robust growth, IHS Markit said.While growth momentum is slowing with the spread of the Delta variant of COVID-19, the pandemic is unlikely to derail global economic expansion, according to British company IHS Markit, which recently said after a 3.4 per cent decline in 2020, world real gross domestic product (GDP) is projected to increase by 5.7 per cent in 2021 and 4.5 per cent in 2022.#
These gains offset setbacks in India and parts of Southeast Asia and Latin America, it said in a statement.
This month's forecast of global growth has been revised downward by 0.1 percentage point this year and 0.2 percentage point in 2022, mostly owing to a less robust performance in the United States. Global growth will settle to 3.2 per cent in 2023 as pent-up demands are satisfied, and fiscal and monetary stimuli are withdrawn.
The resilience of the global economy amid a lingering pandemic suggests that the world is learning to live with the COVID-19 virus, IHS Markit said.
In North America and Western Europe, which account for nearly half of world GDP, a return to strict lockdowns that directly impede economic activity is unlikely. In these regions, vaccination rates are relatively high and rising, reducing the risks of severe illness or death. People have confidence that a resumption of pre-pandemic activities—with some precautions—is relatively safe.
Regions with low vaccination rates face greater risks from the Delta variant. Outbreaks in Asia Pacific have led to new containment measures, disrupting production and trade in a region that accounts for 37 per cent of global merchandise exports.
In contrast, new infections have sharply declined in South America, facilitating economic recovery and the flow of commodity exports. In Africa, the spread of the Delta variant could put the region's health facilities under pressure, but extensive activity restrictions are unlikely. The economic and social costs would be too high given the limited fiscal capacity of governments to provide income support, the company said.
Risks to developing countries will diminish in 2022 as vaccine supplies increase through COVAX and the startup of local production facilities.
The US economic expansion is durable. In the second quarter, real GDP grew at an annual rate of 6.5 per cent quarter on quarter. Strong gains in consumer spending and business fixed investment were partially offset by declines in residential investment, federal purchases, inventory investment, and net exports. In the August forecast, annual real GDP has been lowered 0.5 percentage point, to 6.1%, in 2021, and 0.6 percentage point, to 4.4%, in 2022.
The revisions reflect a lower growth path through the end of 2021, owing to less inventory investment amid supply bottlenecks and more cautious consumer spending in response to the rise in COVID-19 infections.
Western Europe's consumer-led growth spurt will continue, according to IHS Markit. The easing of COVID-19 containment measures, improving labour markets, and household savings accumulated during the pandemic have unleashed a surge in consumer spending.
Mainland China's economic growth is resuming a long-term slowdown. Although the scale of the COVID-19 outbreaks is relatively small, the Chinese government's zero tolerance policy has markedly curtailed economic activities. IHS Markit analysts expect subpar growth near 5 per cent in the second half of 2021 in that country.
Should the economy decelerate sharply, the Chinese government will inject fiscal and monetary policy stimulus. The country's real GDP growth is projected to slow from 8.5 per cent in 2021 to 5.8 per cent in 2022 and 5.5 per cent in 2023.
Asia Pacific's manufacturing hubs are the current hotspots for COVID-19. The spread of the Delta variant in the region is aggravated by the relatively slow progress of vaccination campaigns outside mainland China.
Consumer spending, tourism, industrial production, and exports have been adversely affected. The IHS Markit manufacturing PMI surveys for July indicated deteriorating business conditions in Indonesia, Malaysia, Myanmar, Thailand, and Vietnam, but expansions in other parts of the region.
Supply chain disruptions and shipping delays persist. Pandemic-related production cuts in Southeast Asia have exacerbated input shortages and cost pressures.
In the container shipping industry, the Journal of Commerce team in IHS Markit's maritime and trade group expects that equilibrium in the container shipping system will not be fully restored until mid-2022 or later. Some commodity price pressures are relenting amid softening demand and buyer resistance; this is seen in falling prices for ferrous metals and lumber.
Fibre2Fashion News Desk (DS)
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