The global economy will accelerate in 2021, though with significant variation around the world, writes Bill Conerly for Forbes.
Rebounds in goods trade
The world will benefit from vaccinations, both directly in fewer illnesses and indirectly as lockdowns and fears subside.
It will take most of 2021 and into 2022 for the full benefits of vaccination to be felt, and maybe even longer in poorer countries, but America’s major trading partners should look good next year.
Improved global GDP growth
The OECD recently reported, “Prospects have improved over recent months with signs of a rebound in goods trade and industrial production…. Global GDP growth is now projected to be 5.6% this year …. World output is expected to reach pre-pandemic levels by mid-2021.” The International Monetary Fund predicts similar growth.
Skepticism about the statements of political organizations make sense, but consider the consensus forecast gathered by FocusEconomics.
They survey on-the-ground economists around the world, averaging country forecasts and then adding up to a global average (They also provide regional averages for those interested in, say, South America).
The latest compilation puts world economic growth at 5.2% in 2021 and 4.1% next year. Their forecasters put the greatest quarter-to-quarter gain in the second quarter of this year.
Global vaccination scenario
Covid cases and deaths are dropping rapidly around the world as in the United States.
The decline in this last surge started well before vaccination, so it was probably a reaction to the high case level (more voluntary caution and government-mandated lockdown) plus distance from the Christmas holidays.
The greatest vaccination relative to population has occurred in the U.K. and the U.S. China has a low vaccination rate that is not as worrisome as it may seem because their count of new cases is very low.
Europe is having trouble with vaccinations largely reflecting less foresight than America’s Operation Warp Speed, which paid for vaccines from multiple companies before they were tested and succeeds even if only one vaccine works out. Perfect foresight is not needed, just a willingness to risk looking foolish.
Perhaps a greater entrepreneurial attitude in the U.S. and the UK accounts for the difference. Nonetheless, good vaccines have been developed and are in production. Europe will eventually get most of its citizens jabbed and the economy will thrive.
Rebound in commodity prices
Widespread expectations for a global rebound are illustrated by commodity prices. In general, metals and petroleum can experience much faster demand changes than supply changes. So when demand surges, prices rise sharply.
Demand, however, can be for current usage or for inventory to meet future demand. Oil prices have risen sharply due to expectations for greater future consumption. Oil received an extra boost from Russia and OPEC limiting production, but such limitations usually prove temporary.
Other industrial commodity prices have also increased. “Dr. Copper” is said to have a Ph.D. in economics because it forecasts future production of both consumer and industrial goods. The price of copper is now within spitting distance of a 60-year high.
Ocean shipping has surged, with delays for ships trying to unload containers in Los Angeles/Long Beach, Oakland and Savannah. Shipping costs are four times higher than a year ago. Part of the shipping delays, though, come from social distancing among dock workers, which is not a sign of economic strength.
Surge in credit demands
In another indication of the improving global economy, interest rates are rising around the world, though not be as much as the U.S. experienced.
The global demand for credit tends to rise with the economy, more than the global supply of savings. Thus interest rates tend to rise when the economy is strong, or expected to be strong in the near future.
Blurring the details, the entire planet shared the same roller coaster of Covid-induced economic recession and then partial recovery.
We will all emerge from the slump in the next 12 months or so, with some variation in timing and magnitude.
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Source: Forbes
