Global economic recovery reliant on vaccination rollout and fiscal support

The global economy is forecast to recover almost fully from the pandemic-driven recession but there are major divergences in the pace of recovery across the world, report economists from trade credit insurer Atradius.

The latest Atradius Economic Outlook reveals the emergence of several bright spots in the global economy as the world battles to overcome the damage caused by the unprecedented coronavirus pandemic. However, forecasts for recovery are highly dependent on how quickly people can be vaccinated and lockdowns ended with business support remaining essential to support economies.

Rehearsing the backdrop, the Atradius report recounts how the pandemic catapulted the global economy into recession in 2020. GDP development during the year was very uneven, deeply correlated to the spread of infections and consequent public health measures. With the exception of China, all regions took a severe economic hit in Q2 before a strong rebound as the pandemic temporarily receded. However, the resurgence of infections in the second wave impeded recovery. Overall, global GDP is expected to have contracted 3.9% in 2020.

More promisingly, despite the widespread impact the pandemic inflicted on the economy, Atradius reveals the emergence of several bright spots amongst the gloom. First and foremost is the quick development of Covid-19 vaccines, albeit disparate speeds of mass vaccination rollout across the globe. A second bright spot was created by the election of Joe Biden as US President, reducing policy uncertainty which dominated the Trump tenure, particularly surrounding international trade. Meanwhile, the EU approved its Budget for funding up until 2027 and, following a protracted period of negotiations, the EU and UK struck a Brexit deal – avoiding a potentially damaging no-deal scenario. Atradius reports that each of these developments remove an underlying cause of uncertainty thus creating a potentially positive impact on the global trade environment. However, all eyes are now on the path of the pandemic and whether it will be brought under control, allowing economies to reopen and rebuild.

Looking forward, Atradius forecasts the global economy will grow by 5% in 2021. This means that by the end of the year the economic impact of the crisis on a global level will be wiped out; returning GDP to its 2019 pre-pandemic level. However, while the recession varied in its severity across global regions in 2020, the recovery will be similarly uneven. Emerging Asian countries, led by China and India, will recover much more strongly than the rest of the world. By comparison, Europe and South America will lag behind; only reaching 2019 GDP levels again somewhere deep in 2022. The US and Eastern Europe keep the middle ground, restoring GDP levels before 2021 year end.

Meanwhile, global trade surpassed expectations in 2020. While forecasts for a global trade collapse of between 15%-30%, global trade is now expected to have contracted between 7-8% last year, with a similar sized rebound in 2021.

The current forecast anticipates a good pace of vaccinations, resulting in permanent reductions in restrictions by mid-year. However, if progress is slower than expected and social distancing measures continue into H2, businesses may postpone or even cancel investment amid uncertainty which will hamper economic recovery in 2021.

Simon Rockett, Head of UK Risk Underwriting at Atradius, commented: “The 2020 recession has been unique in that GDP and trade have been severely impacted but insolvencies remained low due to the fiscal stimulus and temporary freezing of bankruptcy proceedings in many markets. This however could change dramatically as stimulus is phased out. In the interim, business support remains essential to support both individual firms and wider economies. Cautious credit management including attention to the financial stability of your business and that of your buyers remain paramount.”