Summary

The global economy continues to recover, and the notion of cautious optimism, as reflected in growth numbers for both 2021 and 2022, remains a valid reference. However, numerous challenges remain that could easily dampen this momentum. In particular, COVID-19-related developments will need close monitoring over the coming months, especially when considering the usual colder weather in the northern hemisphere towards the end of the year. And while global growth levels were upgraded slightly this month, growth dynamics have become increasingly unbalanced among economies, with a large divide between OECD and non-OECD economies, except China. Those economies that have been able to gradually contain the pandemic, thanks to vaccination campaigns and other successful containment strategies, and which also have the financial capability to provide economic stimulus measures are rebounding quickly. In contrast, economies that have less access to vaccinations, apply less successful containment strategies and have only limited financial resources for fiscal and monetary stimulus are not doing as well. Recent efforts by the US administration to provide further fiscal stimulus to its economy are the latest sign of this development.

Better-than-expected 2Q21 performance in the Euro-zone further lifted 2H21 momentum. The expectation of additional fiscal stimulus measures in the US – affecting 2H21 growth in and beyond the US via spill-over lifting global growth – in combination with ongoing accommodative monetary policies in major economies, are all factors that have pushed up the growth forecast for both 2021 and 2022. However, lower-than-expected US 2Q21 GDP growth led to a downward revision for the country’s annual GDP growth forecast. Incorporating these changes, the 2021 global economic growth forecast was revised up to 5.6% from 5.5%. World GDP growth for 2022 was revised up to 4.2% from 4.1%.

The underlying assumptions for world economic growth in 2021 and 2022 are largely unchanged. This includes, in particular, the assumption that COVID-19 remains well contained in the advanced economies in the sense that it will not dampen the recovery beyond current levels and that the pandemic will also not pose a major obstacle to major emerging economies.

There are, however, some significant uncertainties. The path of the COVID-19 pandemic will be the overarching factor impacting the near-term pace of the recovery, with the potential emergence of new COVID-19 variants and/or mutations posing a particular risk. Moreover, sovereign debt in most economies has risen to levels at which a lift in interest rates could cause severe fiscal strain. While key interest rates are assumed to stay at a very accommodative level in the near term, and although inflation scares have abated to some extent very recently, rising inflation could lead to an earlier-than-expected rise in key interest rates, an area that will also need to be closely watched.