OPEC has said that COVID- 19 pandemic remains the overarching concern in the global economy. It says the ongoing lockdowns in many Western economies are dampening the economic recovery in 1Q21, while Asian economies seem have gained further pace, but are also still very much impacted by the pandemic.
The organisation in its February report says looking at updates on growth in the Organisation for Economic Co-operation and Development (OECD), the Euro-zone reported better-than-expected 2H20 growth, lowering the GDP decline in 2020. The US has proposed further fiscal stimulus measures, and Japan seems to continue benefitting of improvements in global trade.
“In the emerging and developing economies, China has reported better-than-expected growth in 4Q20, lifting 2020 FY growth and making it the only major economy to expand in 2020. While India experienced a significant economic decline in 1H20, the economy appears to have improved in 2H20, momentum that is expected to continue in 2021, especially with the broad-based stimulus measures that were announced recently. On a global level, the recovery momentum was led by the manufacturing sector, while the contact intensive services sectors are still impacted by the consequences of the global pandemic. Travel and tourism, leisure and hospitality are all sectors that have hardly gained global momentum, thus very much affecting oil demand”.
After the approval of an additional stimulus package of around $900 billion at the turn of the year, the new US administration is proposing additional stimulus of up to $1.9 trillion. In the Euro-zone, the approval of the 750-billioneuro fund at the end of last year will also provide a sound pillar for momentum going forward.
These large fiscal stimulus packages have certainly lifted debt levels to very high levels, which will require close monitoring in the near term. Global trade levels continued improving, according to data available up to November. World trade volumes rose by 1.5 percent y-o-y in November, compared to -1.4 percent y-o-y in October, based on the CPB World Trade Index provided by the CPB Netherlands Bureau for Economic Policy Analysis.
“This marks the first monthly rise in global trade volumes since a very small uptick in December 2019. Trade improved in value terms as well, rising by 1.6% in November, after a rise of 0.9 year y-o-y in October.
The base assumption for the near- term is that COVID- 19 will be largely contained by 2H21. Current pandemic related challenges are considered to be temporary, as the distribution of vaccines is forecast to gain traction and this should lead to a recovery gaining pace towards the end of 2Q21.
Economic growth in 1Q21 is still forecast to be largely affected by the ongoing rise in infections, the consequent lockdown measures and voluntary social distancing. Importantly, it is forecast that the recovery will be significantly supported by a rebound in contact-intensive sectors, especially in travel and tourism, leisure and hospitality.