Whatâs Going On Here?The pandemic might not be over yet, but economists with an eye on big-picture economic trends are already raising their glasses to a prosperous new year. What Does This Mean?Now that vaccines are making their way around the world, hopes are high that the pandemic will be a thing of the past soon enough. And as the New Normalâą kicks off in earnest, the International Monetary Fund (IMF) reckons the global economy will rebound from this yearâs 4.4% shrinkage to 5.2% growth in 2021. That would take the worldâs economic output roughly back to where it was before coronavirus struck. The IMFâs expecting emerging markets to do the best out of that resurgence, with China and India expected to grow by as much as 9%. Thatâs a far cry from the USâs 3% and the eurozoneâs 5%... Why Should I Care?For markets: The best laid plansâŠ
Steep drops in economic growth have historically been followed by sharp recoveries, but the finer details of what comes next are fuzzier. Most economists are expecting more government spending to help boost growth, which might cause inflation in the prices of goods and services. If prices climb by too much, too quickly, central banks will probably increase interest rates to make borrowing more expensive â in turn discouraging people from spending money and causing prices to shoot up anyway. In other words, thereâs a risk the move could slow down economic growth, rather than accelerate it.
The bigger picture: So much for a common enemy.
Geopolitics will have a major influence on the global economy next year too, what with the ongoing drama in some of the worldâs biggest countries. Between the impact of Brexit on the UK and Europe, the fallout of the trade war on the US and China, and the questions around who will control the US Senate, even the worldâs best economists could see their forecasts rendered moot at a momentâs notice. | 