Global Economic Outlook - New virus variants, but more fiscal stimulus, change the outlook - Aberdeen ...
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January 2021
Global Economic
Outlook
New virus variants, but more fiscal
stimulus, change the outlook
Interim update
For professional investors only, in Switzerland for Qualified investors only – not for use by retail investors or advisers.
.Global Overview
New virus variants, but more fiscal stimulus, change the outlook
The emergence of highly contagious variants of Third, vaccine rollout has begun. The early pace of rollout has suspension of travel subsidies in Japan – are going to push
fallen short of government promises in most economies; take-up headline inflation much higher. But this w ill be temporary and
coronavirus has meant increased lockdown
w illingness is w orryingly low in much of continental Europe; w hile short-lived. The global economy has enormous spare capacity
restrictions in many major economies, and will emerging markets other than China, Russia and India are yet to w hich will take time to erode; inflation expectations are low and
send some into double-dip recessions. But secure meaningful quantities of vaccine. The US, UK and Israel anchored; and central banks have plenty of room to contain
unified Democratic control of the US Presidency are exceptions, w here the initial rollout has been rapid, although inflation if needed. And w hile there has been much speculation
still plagued by hurdles. We still expect vaccines to allow a about ‘policy regime change’ driving inflation higher, the timidity of
and Congress implies further large-scale fiscal
meaningful easing in restrictions and a sharp economic rebound central bank framew ork reviews and reactivity of fiscal policy are
stimulus, which will boost growth. Taking from Q2 2021 onw ards, but easing may have to be more cautious not pointing in that direction.
account of both developments, we have revised w ith more contagious variants of coronavirus in circulation.
All this means that monetary policy should remain broadly
our 2021 GDP forecasts for almost everywhere Fourth, Democrat victories in the tw o Georgia run-off elections for accommodative, albeit there is little in the w ay of additional big-
outside the US down, but our US forecasts for the Senate mean unified control of the US Presidency and bang stimulus factored into our forecasts. The Fed, ECB, Bank of
2021 and our global forecasts for 2022 up. Congress. While the razor-thin majority in the Senate w ill constrain Japan and Bank of England continue to expand the size of their
some of President Biden’s legislative agenda, our US fiscal policy balance sheets through QE. The ECB may yet increase its
There have been several important developments since our expectations have nonetheless shifted from a sharp contraction to monthly asset purchases further amid chronically low inflation, but
November 2020 forecast round, w hich mean w e are issuing a mid- additional stimulus. We are factoring in at least an extra $1trn w e think the Fed w ill taper purchases during 2022 as fiscal
quarter interim forecast update. First, data at the end of last year Covid relief package in the short term (on top of the $900bn bill stimulus drives demand higher and unemployment low er.
show ed remarkable resilience in the manufacturing sector, w hich passed last year), and a $500bn-1trn broader fiscal package over Meanw hile, the Chinese credit impulse and broader financial
is less affected by renewed lockdowns relative to the spring. subsequent years. The effect of all this is to raise the level of US conditions are set to move from being very loose to broadly
Admittedly, lengthening supplier delivery times show up as a GDP by end-2022 some 3% relative to our November forecasts. neutral, amid a renew ed focus on financial stability concerns.
positive in PMI calculations w hich gives a false impression of
strength, w hile retail sales and mobility measures w ere weakening Bringing all this together, our 2021 global grow th forecast of 5.1% Finally, there are very w ide confidence intervals around our central
in the final months of 2020. But it means w e have revised up our is above-trend but below -consensus. Our forecasts reflect a larger forecasts. Indeed, in this interim forecast round, w e have lowered
2020 GDP forecasts (pending Q4 data), particularly for the UK, near-term hit from renew ed lockdowns, which the consensus is yet the probability w eighting of our central case, and increased the
Eurozone and Brazil. to properly incorporate. By contrast, our 2022 global grow th chance of alternative scenarios, w hile keeping a small positive
forecast of 4.8% is both above-trend and above-consensus, as re- skew to the outlook. On the upside, there are scenarios in w hich
Second, more infectious strains of coronavirus have been opening continues to drive strong global economic activity. We vaccine rollout boosts activity by more than w e anticipate and
identified in the UK, South Africa and Brazil. Alongside household continue to think that the Covid crisis will inflict lasting damage to limits long-term economic scarring, especially if governments
mixing over the holidays, this is driving sharp increases in Covid the level of global GDP relative to the pre-crisis trend path. That decide to re-open economies as soon as the most vulnerable
cases and deaths in several economies, and has necessitated damage w ill be largest in Europe w here the economy is heading share of the population have received inoculations. But on the
tighter lockdow ns in many more. In Europe, school and hospitality into a double-dip recession, and smallest in China w here the dow nside, if the faster-spreading variants of the virus become
closures are particularly economically damaging, and w e now recovery has been rapid albeit is now moderating. embedded in the likes of the US, Brazil or India, double-dip
forecast that the UK and most Eurozone economies w ill contract in recessions will not be confined to Europe. And in extremis, virus
both Q4 2020 and Q1 2021. In Japan, the state of emergency has Turning to inflation, both the short- and long-term implications of
mutations could render the current crop of vaccines dramatically
spread beyond Tokyo to more prefectures, while the (postponed) this crisis are likely to be net disinflationary. Admittedly, over the
less effective, meaning endemic virus spread and rolling
2021 Olympics are increasingly unlikely to take place. All this next few months, energy base effects – as w ell as idiosyncratic
lockdow ns until such time as new vaccines can be developed.
could take Japanese GDP grow th negative in the first quarter. drivers such as an expiring VAT cut in Germany and the
1Global Forecasts
Global economy facing more weakness in Q1 2021, before a renewed acceleration later in
the year as vaccine rollout and reopening gain traction
Global GDP growth forecasts Implied global GDP levels (Q4 2019 = 100)
8% 12% 115
6%
8% 110
4%
4% 105
2%
0% 0% 100
-2%
-4%
95
-4%
-8%
-6% 90
2019 2020 2021 2022
-8% -12% Pre-crisis trend
2020 2021 2022 Nov 20 forecast round
Global growth q/q y/y (RHS) Jan 21 interim forecast round
Source: Aberdeen Standard Investments, Haver, January 2021 Source: Aberdeen Standard Investments, Haver, January 2021
*Forecasts are offered as opinion and are not reflective of potential performance. Forecasts are not guaranteed and actual ev ents or results may differ materially.
2Global Forecast Summary
GDP growth CPI inflation
2020 2021 2022 2020 2021 2022
Global -4.4 5.1 4.8 3.2 3.0 3.0
DM -5.2 4.1 4.2 0.6 1.2 1.4
US -3.5 5.3 4.8 1.2 2.1 2.1
UK -10.0 5.7 5.3 0.5 0.8 1.3
Japan -5.3 2.1 2.4 -0.3 -0.4 0.5
Eurozone -6.9 3.1 3.7 0.3 0.8 0.8
EM -3.9 5.8 5.2 5.1 4.4 4.1
Brazil -4.7 3.4 2.2 3.2 4.9 3.1
Russia -3.0 1.7 2.5 3.4 4.3 2.9
India -9.6 10.6 5.7 6.6 4.0 3.6
China -2.6 9.4 7.9 2.4 1.1 2.1
Source: Aberdeen Standard Investments (January 2021)
*Forecasts are offered as opinion and are not reflective of potential performance. Forecasts are not guaranteed and actual ev ents or results may differ materially.
3Global Economic Scenarios
We maintain a modest upside skew, as further fiscal stimulus and vaccine rollout gather
pace. But new variants mean new risks, and we have increased the probability of the
extreme “L” scenario amid potential for mutations to render vaccines ineffective
Scenario Description Probability*
Virus &vaccine: effective vaccines rolled out rapidly over early-2021, with most of the G20 inoculated by end 2021; therapeutics reduce mortality and strain on
health systems.
V
Economic openness: second wave is very quickly brought under control, allowing lockdown restrictions to ease .
Deep recession then rapid 10%
Behavioural response: lower viral prevalence allows resumption of pre-Covid socially intensive activity.
recovery
Policy: monetary, fiscal and structural policies remain proactively focused on supporting a rapid recovery.
Economic impact: rapid rebound in activity, helped by excess savings, so that all the output lost relative to the pre-Covid trend is made up by end 2021.
Virus & vaccine: several hundred million doses of vaccine administered over early 2021, while therapeutics reduce mortality and strain on health systems.
Mild reverse √ Economic openness: lockdown is phased out across major markets through Q31-Q2 as vaccine rollout gathers pace.
Deep recession with recovery Behavioural response: economic activity supported by gradually more confident consumers and corporates.
22.5%
helped by early vaccine leading Policy: generous programmes for economies sustained through 2021.
to limited permanent loss Economic impact: recovery continues through 2021 as uncertainty declines. Most sectors return to normal function, but some pe rmanent damage from weaker
potential output (1-2% permanent hit to growth).
Virus & vaccine: virus persists over much of 2021, but declines from current levels from Q2 onwards. Vaccines rolled out with good take-up across major markets
mid-late 2021, while therapeutics reduce mortality and strain on health systems.
Economic openness: lockdown is phased out slowly through 2021, but some measures remain in place even by year-end.
Reverse √
Behavioural response: economic activity gradually returns, but incomplete vaccine coverage and uncertainty continue to create some caution among corporates
Deep recession with drawn out 25%
and consumers.
recovery and permanent loss
Policy: policy helps avoid a worse outcome by bridging some of the liquidity issues faced by households and firms.
Economic impact: double-dip recession in some economies in short term, with more gradual recovery and lasting damage resulting i n the permanent loss of 3-5%
of output.
Virus & vaccine: more infectious variants of the virus are persistent over 2021, with vaccine rollout delayed & hampered by p oor take-up.
W
Economic openness: tight lockdowns stretch well into 2021, and are periodically re -imposed across multiple major markets.
Deep recession; very uneven
Behavioural response: ongoing outbreaks and lockdowns lead to weak business investment and consumer caution. 22.5%
recovery, with permanent output
Policy: policy mistakes occur in key major markets as politics trumps economic need.
loss
Economic impact: economic and financial volatility amid persistently depressed activity with permanent output hit 6-9% versus previous trend.
Virus & vaccine: further virus mutations mean that current crop of vaccines either fail or see dramatically reduced efficacy. New vaccine research efforts are
required, but don’t bear fruit until 2022.
L
Economic openness: extreme lockdowns persist throughout 2021 and into 2022.
Deep, protracted, depression like 5%
Behavioural impact: this yields significant behavioural changes and makes it much harder to mend broken cash flow cycles.
loss of output
Policy: premature fiscal tightening in key markets/ loss of faith in ability of central banks to act or fears of politicisation.
Economic impact: recovery looks more like the post-GFC pattern with much larger permanent losses worth around threeyears of global growth (10%).
Source: Aberdeen Standard Investments (January 2021)
*The probabilities assigned to these scenarios do not add up to 100%. This reflects the w ide range of alternative potential outcomes that cannot be captured in this exercise. Importantly, missing scenarios
are assumed to be evenly distributed to the upside and dow nside relative to the base case.
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