Economic Outlook 2021: The world economy in 2020 was dominated by a massive economic slump in the spring, followed by a rapid recovery in the summer. Then the rising number of infections in the fall halted the recovery process. Economic development in 2021, as it did in 2020, will depend to a large extent on the Coronavirus pandemic.
Economic performance in the summer of 2020 was V-shaped
In Europe and the United States, the economic recovery in the summer of 2020 took a V-shaped path. This is illustrated by the course of industrial production in the European Union and the U.S. Between February and April 2020, industrial production saw a massive slump then saw a strong recovery until July. Since then, economic momentum has been weakening in both regions, and pre-crisis industrial production levels were not yet reached by the fall.
Economic outlook: Economic start to 2021 between hopes and fears
Ultimately, the development of the global economy in the coming year will depend on the further course of the Corona pandemic. There is both light and dark to be seen:
- With the start of vaccinations in December 2020, confidence is growing that the pandemic will be contained. This improves business expectations for companies and the income expectations for private households. Both factors give rise to the hope for an economic recovery in 2021.
- At the same time, however, it is evident that comprehensive vaccination protection for large parts of the population will take many months, even in developed economies. Rapid containment of the Corona pandemic is therefore unlikely. It must also be taken into account that it will in all likelihood take until 2023 or even 2024 before the entire world population can be supplied with the vaccine.
- In addition, mutations of the coronavirus are a real threat. Because it is unknown whether these mutations affect vaccination protection, such mutations can accelerate the spread of the infection to people who have not yet been vaccinated and cause uncertainty.
Uncertainty about the Corona pandemic’s future course in 2021 is depressing the business and income expectations of economic agents. This slows down the propensity to invest and consume and weakens the economic recovery on the demand side. Therefore, it’s possible that economic growth in developed economies in 2021 will not be sufficient to offset the 2020 slump.
Developed economies will not reach pre-crisis economic levels until 2022
In the International Monetary Fund (IMF forecast published in June 2020, the IMF assumed a global GDP decline of almost 5 percent for 2020! . Although economic output was expected to increase in 2021, Germany and other industrialized countries are not expected to return to their pre-corona pandemic GDP levels until 2022.
In the forecast published in October 2020, the GDP declines expected for 2020 were somewhat lower than in June. The growth rates for 2021, however, were somewhat lower too. This is in part because the economic recovery originally expected for 2021 took place in 2020. However, it still remains the case that developed economies in 2021 will not be able to compensate for GDP losses in 2020.
Economic recovery with sectoral differences
In individual sectors of the economy, different dynamics can be expected:
- Some sectors are growing even in the crisis. First and foremost, these include e-commerce, the software and computer industry, and digital service providers. They can expect further growth in 2021.
- However, some sectors will continue to suffer from a drop in sales: the tourism industry, including aviation, brick and mortar retail, and the entire event industry (trade fairs, conferences, major cultural and sporting events), to name just a few. Only a weak recovery — if any — is to be expected there.
Economic Outlook: Global economy 2021 — uncertainties remain
Even though hopes for economic growth in 2021 have increased with the start of vaccinations, this upswing is not guaranteed. Too many unanswered questions remain. To name just a few:
- Will there be a significant increase in corporate bankruptcies in 2021? Since the outbreak of the Corona pandemic, there has been massive liquidity support for companies worldwide. Nevertheless, many companies will not survive the economic crisis in the long term because they will be unable to repay their loans.
- Will the U.S. under Joe Biden end the protectionist policy pushed by Donald Trump? It is to be hoped that the new U.S. administration will once again be more committed to rules-based international trade. However, Joe Biden will have to keep his voters and their interests in mind, making a quick and comprehensive rollback of existing trade restrictions unlikely.
- How will the European economy develop from January 1, 2021, when the United Kingdom has effectively left the EU? Although a trade agreement between the EU and the United Kingdom was concluded shortly before the end of the year, nevertheless, the final Brexit will create many new trade barriers that will mean additional costs for importers and exporters. This will make trade relations within Europe more difficult.
Therefore, only a slow and bumpy economic recovery can be expected for the first months of 2021 due to the still high infection figures worldwide. In the European economies, where lockdowns are again in place due to high infection figures at the beginning of the year, real GDP may even decline in the first quarter of 2021.
As infection numbers fall over the summer and vaccinations reach more people, the recovery may accelerate. Nevertheless, uncertainty remains high — the global economic recovery is unstable and unpredictable. For governments, this means to stabilize the economy, governments may have to continue to implement stimulus packages.