The global economy is projected to grow in 2021 by around 5% in market exchange rates - the fastest rate recorded in the 21st century - returning the global economy in aggregate to pre- pandemic levels of output by the end of 2021 or early 2022.
The predictions, published in PwC’s Global Economy Watch for 2021 - From the Great Lockdown to the Great Rebound - highlight key themes for 2021 linked to a wider reset for economies, skills and society.
Growth will return, but be uneven and be contingent on a successful and speedy deployment of vaccines and continued accommodative fiscal, monetary and financial conditions in the larger economies of the world. Another key theme will be how the push for recovery and growth could synchronise green infrastructure investment, creating a turning point in the fight against climate change.
Growth will return but be uneven
Despite projected expansion of 5% in market exchange rates this year, the predictions caution that the next three-to-six months will continue to be challenging, particularly for the Northern Hemisphere countries going through the winter months as they could be forced to further localised or full economy-wide lockdowns (as recently displayed in the UK).
Output in some advanced economies, for example, could contract in Q1 and growth overall is more likely to pick up in the second half of the year, when it is expected that large advanced economies will have vaccinated at least two thirds of their population.
“While it’s good news that the global economy in aggregate is likely to be back to its pre-crisis levels of output by the end of 2021 or early 2022, a distinguishing feature of the Great Rebound is that it will be uneven across different countries, sectors and income levels," said Barret Kupelian, senior economist at PwC. "For example, the Chinese economy is already bigger than its pre-pandemic size, but other advanced economies - particularly heavily service based economies like the UK, France and Spain or those focused on exporting capital goods, such as Germany and Japan - are unlikely to recover to their pre-crisis levels by the end of 2021.”
In economies such as the UK, France, Spain and Germany, growing but lower levels of output are projected to push up unemployment rates, with most of the jobs affected likely to be those at the bottom end of the earnings distribution, thus exacerbating income inequalities.
“Once the virus is under control, policymakers’ attention will need to focus on laying the foundations for sustainable and inclusive growth with particular focus on creating jobs and pushing the green economy agenda," Kupelian said. "Business leaders need to plan now both in terms of growth and investment, including upskilling of their existing workforce as a key aspect.”
A synchronised push for green infrastructure
The environment will be an important focus for 2021 and is already being positioned as an opportunity for accelerating the business and policy transition to net zero. Significant investment and policy shifts related to the Paris Climate Agreement are expected in 2021 in the major trading blocks including the US, China and the EU.
Green bonds, which are used to directly finance environmental projects, currently make up less than 5% of the global fixed income market. In 2021, total green bond issuance will increase by over 40% to top half a trillion US dollars for the first time. In addition, investor appetite for environmental, social and governance (ESG) funds will continue to increase and could account for up to 57% of total European mutual funds by 2025.
Globally, the analysis points to electricity production from renewables continuing to gather momentum, with solar photovoltaic (PV) capacity likely to grow at rapid rates on the back of growing capacity in the EU, India and China. If current trends continue, solar PV capacity is on course to surpass natural gas in 2023 and coal in 2024 in the global electricity sector.
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