India And China To Lead Global Economic Recovery

Economy

India And China To Lead Global Economic Recovery

According to various analysts, amongst the top ten largest economies, India and China will recover the fastest, while the UK and Brazil will take the longest. India is leading the world's economic recovery with a GDP growth set to reach 9% in 2021, a strong performance led by a 12.5% forecast increase in private consumption. Global real GDP growth will reach 5.1% in 2021 with developing and advanced economies at 6.1% and 3.8% respectively, according to global market research company Euromonitor International. India will lead the world's economic recovery with GDP growth set to reach 9% in 2021. In second place, China's GDP growth is forecast at 7.5% for 2021. With the country's industrial and services sectors having already recovered by October 2020, its private and consumer sectors are following suit, signaling an acceleration in recovery, according to Euromonitor International. ADB expects India, China to recover faster The Asian Development Bank has said the Indian economy will contract at a slower pace of 8% against its earlier estimate of 9% in FY21 on the back of a faster recovery in Asia's third-largest economy following the easing of Covid restrictions."The earlier South Asia forecast for 6.8% contraction is upgraded to 6.1% in line with an improved projection for India, as recovery accelerates, from 9% contraction to 8%. Growth will return in 2021, at 7.2% in South Asia and 8% in India," ADB said in a supplement to its Asian Development Outlook. The Indian economy contracted by 23.9% in the June quarter of FY21 and "began to normalise after containment measures started to ease in June". Economic contraction in the September quarter narrowed to 7.5%, better than expected, ADB said. ADB now projects China's economy to grow at 2.1% in 2020 from its earlier estimate of 1.8% growth, factoring in consistent fiscal and monetary support by the government. "The outlook for developing Asia is showing improvement. Growth projections have been upgraded for China and India, the region's two largest economies," said ADB chief economist Yasuyuki Sawada. "A prolonged pandemic remains the primary risk. However, recent developments on the vaccine front are tempering this. Safe, effective and timely vaccine delivery in developing economies will be critical to support the reopening of economies and the recovery of growth," he said. However, ADB revised its inflation forecast for FY21 to 5.8% from its earliest estimate of 4.5%. "In India, supply chain disruption brought food inflation to an average of 9.1% in the first seven months of FY21, pushing headline inflation to 6.9% in the same period. Inflation in India is expected to ease in the coming months and the 4% update projection for FY22 is maintained," ADB said. Fitch Ratings too revised upward its GDP estimate for India to a contraction of 9.4% in FY21 from the -10.5% projected earlier on the back of a faster-than-expected recovery and expected rollout of vaccines. However, it cautioned that the vaccine rollout over the next year will not reach the majority of the people, given the huge logistical and distribution challenges in the heavily populated country. UK, Brazil will take longer to recover In the UK, the situation between Covid-19 and Brexit causes uncertainty about the future and gives an additional shock to the economy. Giedrius Stalenis, economist at Euromonitor International states, "Unsuccessful Brexit negotiations would stagnate economic growth for the UK. However, if companies prepare better for a No-Deal Brexit, the UK economy could grow around 4% by 2021." In Brazil, while the energy and transportation sectors are still underperforming, the manufacturing and production sectors are showing signs of partial economic recovery, forecasting a 3.2% GDP growth in 2021, one of the lowest in the world. The increase in an ageing population is another contributing factor to a comparatively slower recovery rate in advanced economies, such as Japan, Italy and France. UK economy will revive in 2021 but full recovery not likely until 2022: CBI Britain's economy will bounce back next year from the Covid-19 pandemic but a fifth year of weak business investment will delay a full recovery until the end of 2022, according to CBI forecasts. A combination of Brexit uncertainty, which is expected to continue into next year with or without a deal, and the blow to business confidence during the first and second lockdowns will delay a rebound in private sector investment. Business investment has remained flat since the 2016 Brexit vote as companies struggled to assess the impact of Brexit while negotiations continued. With No 10 and EU officials locked in talks this week and a conclusion not expected to be reached until nearer the transition end date on 31 December, business groups including the CBI have said they fear uncertainty could deter investment in the new year. The CBI said it was optimistic that the vaccine was an important element in the recovery and would allow household incomes and spending to be a catalyst for revival from mid-2021 onwards, "as the prevalence of the Covid-19 fades, a pandemic-related spike in unemployment eases and earnings recover". With the vaccine taking effect by the summer, consumer spending and Whitehall support programmes will be the main drivers pushing the economy back to its previous peak. The business lobby group said a 6% rate of growth in GDP over 2021 would slip back to 5.2% in 2022, after the planned withdrawal of the government's most generous pandemic support programmes. However, the second lockdown in England over November and much of the country adopting tight restrictions under the government's tiered system, which would lead to a third quarter of negative growth, meant the UK was starting from a lower position than expected in the summer, the business lobby group said. A 1.7% fall in GDP in the fourth quarter will lead to a total contraction of 11.1% over 2020 - confirming that 2020 has been the worst year for the UK economy since 1709. Business investment, which dived by 17.5% in 2020, would be followed by a further small reduction in 2021 of -0.6% before growing by 9.3% in 2022, the CBI report said. US economy to slow in Q1, reach pre-Covid-19 levels in a year: Reuters Poll US economic growth will lose momentum this quarter and next but expand faster than previously thought after that, according to a Reuters poll of economists, a firm majority of whom now expect the economy to reach pre-Covid-19 levels within a year. While the near-term economic outlook has dimmed again as the US remains the country worst-hit by the pandemic and on uncertainty about a fresh fiscal package, Wall Street stocks have reached record highs on positive vaccine news. The growth outlook for the current and next quarters was lowered in the November 30-December 8 poll. A few respondents predicted a double-dip, expecting the economy to contract again next quarter. "We expect the rising threat of Covid-19 to dampen growth through the first months of 2021, followed by further fiscal support from the prospective new administration in reaction to the rise in hospitalisations," noted Ellen Zentner, chief US economist at Morgan Stanley. "Downside risks are dominated by Covid-19, and particularly if broader-than-expected shutdowns over the winter and a delayed vaccine come in the absence of further fiscal stimulus. In this scenario, a more drawn-out recovery would lead to longer stints of unemployment and greater permanent job loss." But in response to an additional question, nearly two-thirds of economists, or 43 of 69, said US GDP would reach pre-Covid-19 levels within a year. Twenty-one said within two years and five said two or more years. That is a turnaround from the August poll findings, where none of the economists said "less than a year", with nearly 60% predicting the economy would take two or more years to reach pre-pandemic levels. The wider poll showed GDP for Q3 is expected to remain unrevised at a record 33.1% when the final data is issued later this month, after contracting at an annualised 31.4% pace in Q2, its sharpest decline in at least 73 years. It was expected to grow 4% this quarter, compared to 3.7% predicted previously. For the first quarter the consensus was lowered to 2.5% growth from 3% last month, with nearly 11% of respondents predicting the economy would contract in Q1. It was expected to expand 3.8%, 3.9% and 3.4% in the following quarters of 2021, compared to 3.5%, 3.5% and 3.2% predicted, respectively, last month. The world's largest economy was forecast to contract 3.6% this year then grow 3.9% next year and 3.1% in 2022. Three-quarters of economists, or 44 of 58, who responded to a separate question said the outlook for the strength of the US economic recovery had either stayed about the same or improved from last month. "Near term (1-3 months) has worsened on the back of rising Covid-19 cases, which could lead to more containment measures being introduced at the expense of economic activity," said James Knightley, chief international economist at ING. "However, political risks have subsided and vaccine roll-out news offer clear positives on the medium (3-6 months) term outlook." Still, only 21% of 43 economists in response to a separate question expected the Federal Reserve to announce more stimulus at its December meeting. Thirteen economists said the Fed would change its policy next in 2021, six said in 2022 and 15 said 2023.