World economic recovery forecasts
Tashkent, Uzbekistan (UzDaily.com) -- The international rating agency S&P Global Ratings has published forecasts for the recovery of the global economy. According to experts, emerging market economies have begun to recover from a sharp downturn in economic activity, as governments weaken social distancing measures, global demand is growing, and financial conditions remain favorable.
Recovery is occurring at varying rates in developing countries, driven by developments related to the pandemic, as well as other factors such as the speed of recovery of major trading partners and the effectiveness of political support. Average GDP in developing countries excluding China will decline 6.4% in 2020 and grow 6.2% in 2021.
It is noted that experts have revised the forecast for GDP growth for 2020 upward in Brazil, China, Russia, Poland and Turkey, downward - in most developing countries. The forecast for a fall in India’s GDP from 5 to 9% in 2020 has been sharply worsened.
According to experts, restrictions within countries and among key trading partners seriously undermined business activity in developing economies in the second quarter of this year. In particular, the volume of production fell by 30-70%. The average decline in GDP in many developing countries, with the exception of China, was 45% in annual terms.
Highlights on the current state of the global economic recovery.
First, there is a close relationship between the severity of restrictions and the magnitude of the fall in GDP. Other factors also play a role, in particular: a) structural factors such as the share of services in production and employment; b) the effectiveness of political support for the economy.
Second, the gradual restoration of labor mobility. Mobility data show a continuing normalization of activity in developing countries, although it remains highly variable. At the same time, developing countries in Europe are leading in terms of a return to pre-pandemic levels of mobility.
Third, industrial production and retail sales confirm the ongoing recovery in developing countries, although they also vary widely across countries.
Fourth, financial conditions remain favorable for developing countries. According to experts, most of the currencies of developing countries rose in price in the third quarter, with the exception of the Russian ruble and the Turkish lira. Both currencies lost 10-12% of their value against the US dollar in the context of rising risk of sanctions (Russia) and increasing current account deficits and negative real interest rates (Turkey).
Fifth, monetary policy in key emerging economies will remain soft this year and next. It is noted that this year the central banks of developing countries have reduced interest rates by an average of 1.5%, and in many cases they are the lowest on record.
In this context, the Fed’s commitment to keep rates unchanged for several years has prompted central banks in a number of developing countries to follow suit, guided by keeping interest rates low, which will somewhat reduce the pressure of currency depreciation against the US dollar. Some central banks in developing countries will start gradually raising interest rates in 2021 as the expected recovery in demand will push inflation expectations.
World economic recovery forecasts.
S&P Global Ratings experts have presented their forecast for economic recovery in the countries of the world. In 2021, most emerging economies in Asia will return to their pre-pandemic GDP levels. Experts predict that GDP growth in emerging Asia will decline by 1.6% in 2020, then recover to 7.7% in 2021. Trading activity began to recover faster than experts expected, helped by growing demand from the outside China.
However, some temporary job losses may become permanent as financial support expires and more businesses are closed.
Investment costs have plummeted, limiting production capacity, and firms will take time to rebuild their balance sheets.
Experts revised the forecast for China’s GDP growth to 2.1% in 2020 (from 1.2%) and to 6.9% in 2021 (from 7.4%). Recovery remains unbalanced and not self-sustaining. The acceleration in growth is driven by infrastructure, manufacturing and real estate, but consumers remain optimistic. Experts also raised the forecast for Russia’s GDP growth to -3.5% (previously -4.8%), but lowered the growth forecast for 2021 to 2.9% (from 4.5%). At the same time, the rise in oil prices and the expected increase in its production should support the recovery next year.
Overall, the COVID-19 pandemic has resulted in significant irreversible income losses for developing countries in all regions, especially India, Latin America and South Africa, due to high levels of debt, low investment and severe damage to labor markets.
In this context, the main risks to the global economy are the following:
1) geopolitical risks. It is noted that in the third quarter of 2020 there was an increase in geopolitical risks in some developing countries, especially in Russia and Turkey;
2) social instability is an important risk, especially in Latin America;
3) A renewed rise in COVID-19 infections, especially if associated with a sharp increase in adverse health outcomes, could disrupt recovery in developing countries due to tightening restrictions or a sharp increase in risk aversion from consumers and businesses. In this context, if advanced economies re-imposed restrictions, it could lead to a significant decrease in global demand, trade and commodity prices, slowing the recovery of developing countries;
4) the likelihood of premature termination of state support. This can create a clipping effect and undermine recovery.
In this regard, experts say, earlier vaccine deployment could help improve forecasts, and will directly benefit emerging markets as consumers and companies start spending more.