The global economic recovery will strengthen and become more sure-footed from the middle of next year as coronavirus vaccines are rolled out and social distancing starts to unwind, says Fitch Ratings in its latest Global Economic Outlook (GEO). Fitch now expects world GDP to fall by 3.7% in 2020 compared to 4.4% in the September GEO. This is despite the expectation of renewed falls in GDP in 4Q20 in the eurozone and the UK—- following the recent tightening of restrictions — and reflects the fact that global activity rebounded much more quickly than expected in 3Q20. "The global recovery path is proving bumpier than expected as the second wave of the virus prompts new restrictions, but the vaccine news is very positive for the economic outlook over the next two years," said Brian Coulton, chief economist, Fitch Ratings. Fitch has revised up its 2021 global growth forecast to 5.3% (from 5.2%) with stronger growth through 2H21 partly offset by weakness in the immediate months ahead. US GDP is now projected to expand by 4.5% (up from 4.0%) and China by 8.0% (up from 7.7%) but eurozone growth is now forecast at 4.7% (down from 5.5%) as renewed lockdown measures take their toll on activity over the winter months. Fitch has also revised up its global growth forecasts for 2022 to 4.0% from 3.6% reflecting the anticipation of reduced social-distancing disruptions once immunization programs have broadened. Our 2022 forecasts now also incorporate expected grant disbursements from the EU's Next Generation EU recovery fund. These are likely to provide a sizable boost to public investment and we have raised our eurozone growth forecast for 2022 to 4.4% from 3.2% in the September GEO. US GDP is now expected to grow by 3.5% in 2022 (up from 3.0%). Developments in the past few months have thrown more light on the unprecedented economic impacts of the pandemic. Strong and faster-than-expected recoveries in 3Q20 illustrated the boost to activity from re-opening, even if a true 'V'-shaped rebound remained elusive. While the recent second wave of lockdowns is not compressing activity anywhere near as sharply as in April, base effects will lift sequential growth markedly when restrictions are eased in 2021. The role of unparalleled macro policy easing and sovereign support in cushioning the impact of the pandemic has also become clearer. Aggregate household-sector disposable incomes have remained broadly stable in Europe — and have increased significantly in the US — owing to huge fiscal transfers. Unemployment rates in Europe have risen only modestly due to the extension of massive furlough schemes, and small business failures have yet to surge. "Massive policy easing has been aimed at providing the private sector with a 'bridge' to the other side of the health crisis. With the vaccine news providing a clearer end-point, it seems likely that further support will be extended in the near term," added Coulton. Vaccine rollout problems or delays are the key downside risk to the forecast and could result in repeated circuit-breaker restrictions and extensive social distancing through 2021, weighing heavily on GDP. In the next couple of months there could be a sharper-than-anticipated weakening in US activity from tighter social-distancing restrictions, leading to a fall in GDP in 1Q21. The potential disruption from a failure to agree a free-trade deal between the UK and the EU could also have a more severe impact than the one incorporated into our UK GDP forecasts. — SG
