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Global economy forecast to experience above-trend growth

The global economy is set for a rebound and is likely to experience above trend growth over the course of the next two to three years, according to a new report from whatinvestment.co.uk.

The speed and the strength of that recovery largely depends on the pace of vaccine rollout. Differences in the size of fiscal monetary policy stimuli will have an effect too, so will the different rate of spread of new virus waves as countries battle the third, fourth, and even the fifth waves of the deadly disease.

The UK is well positioned compared to a lot of these other countries , in particular compared to other globally developed markets and anaylists expect strong growth compared to other G7 countries.

Notwithstanding the effects of the emergence of a new virus strain in the UK, a strong momentum is forecast for the UK.

Consumers and businesses in the UK have all adapted quite well to the latest set of restrictions and are re-emerging from the very recent lifting of restrictions stronger and leaner than ever before.

In their reports, statistical agencies are also trying to include new measures such as activity related to COVID testing in vaccines and GDP measures are being added to the calculations in order to account for all of this.

Retail spending has been strong, a gradual move  from household spending on goods, durable goods and online spending and a shift towards leisure service sector, hospitality, is expected throughout the year.

As far as the UK labour market is concerned, the sector has been well spupported by furlough schemes, so unemployment rate is particularly low  in comparison to activity and the weakness in the activities reported last year. Unemployment rates will nodoubt rise slightly as these furlough schemes expire. However, as the economy bounces back these should fall back in line with expectations.

Global pandemic worries

The rapid spread of the Omicron variant indicates that the pandemic will likely continue to disrupt economic activity in the near term though. In addition, a notable deceleration in major economies—including the United States and China—will weigh on external demand in emerging and developing economies.

At a time when governments in many developing economies lack the policy space to support activity if needed, new COVID-19 outbreaks, persistent supply-chain bottlenecks and inflationary pressures, and elevated financial vulnerabilities in large swaths of the world could increase the risk of a hard landing.

“The world economy is simultaneously facing COVID-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful for developing countries,” said World Bank Group President David Malpass. “Putting more countries on a favorable growth path requires concerted international action and a comprehensive set of national policy responses.”

Although output and investment in advanced economies are projected to return to pre-pandemic trends next year, they will remain below in emerging market and developing economies (EMDEs), owing to lower vaccination rates, tighter fiscal and monetary policies, and more persistent scarring from the pandemic.