Growth forecasts for the United States and China remain at 5% and 9% respectively, but those for the euro area and the United Kingdom have been revised downward (from 5% to 4.5% for europe and 7% to 5% for the UK).
Australia's economy is expected to normalise more quickly than other countries, with growth around 4% in 2021 and output reaching its pre-virus level by the third quarter.
Monetary policies in the United States, the euro area and the United Kingdom are likely to remain highly accommodative, with the continuation of quantitative easing programs through 2021. However, the People's Bank of China (PBOC) may raise interest rates as early as the second half.
Against a backdrop of subdued employment growth and inflation, it is expected that the Reserve Bank of Australia will maintain its dovish pivot, and will effect any policy adjustments through its new quantitative easing program.
In the United States, a more recent trend of daily COVID-19 vaccinations approaching 1 million reaffirms the outlook for GDP growth above 5% in 2021. Additional fiscal stimulus would introduce the potential for further upside to growth.
A surge in COVID-19 cases and resulting restrictions on economic activity has led to a tempering of the 2021 GDP forecast for the euro area. We now expect the euro area economy to grow around 4.5% in 2021, lower than our forecast for growth around 5%.
As a result of COVID-19, the forecast for 2021 GDP growth has similarly been revised downward for the United Kingdom, from around 7% to around 5%. We expect the impacts to be most keenly felt in the first quarter, with a slide back into recession likely. The United Kingdom and European Union agreed on 24 December 2020 to a deal guaranteeing that trade between them will continue free from tariffs and quotas, effective January 1, 2021. The United Kingdom's EU membership officially ended on January 31, 2020, but a transitionary arrangement had left the UK-EU economic relationship unchanged for the remainder of the year. The overall impact of Brexit is expected to exert a greater negative effect on GDP in the United Kingdom than in the Euro area.
The economy in China grew by 2.3% in 2020, according to China's National Bureau of Statistics, the only full-year growth that any major economy is likely to register for the year. The forecast for China's economy to grow around 9% in 2021 is maintained as elevated developed-market demand for goods persists through the first half (this is particularly the case with additional fiscal stimulus likely in the US and as China's domestic service sectors continue to recover).
Resurgence of COVID-19 is the primary risk to recovery in Australia. However Australia's economy is expected to normalise more quickly than those in other parts of the world with growth around 4% in 2021 and output reaching its pre-virus level by the third quarter of 2021. GDP data for the fourth quarter of 2020 is scheduled to be released Wednesday, March 3.
The unemployment rate in Australia fell to 6.6% in December. With the output gap (the difference between the economy's actual output and its potential output) not expected to close in 2021, it is expected that Australia won't realise full employment (less than 5%) before 2022.
Economic growth of around 6% is expected for emerging markets as effects of the pandemic and progress of vaccine rollout - sure to lag behind that of developed markets - remain central themes.
This update is current as of 22/02/2021 and is kindly provided by Vanguard Investments. The information contained in this email is of a general nature only and your personal financial position, objectives or needs have not been considered. Please ensure you have the necessary financial, tax and legal advice before acting on this information. Do not rely upon it when making financial decisions.