Most of the world economic growth projections for 2021 are quite contradictory. Some experts are optimistic about the global economy in the current year, while others anticipate rather pessimistic scenarios. Nevertheless, they all agree that the situation in 2021 will remain dependent on the coronavirus pandemic.
When 2020 started, the global economy had just notched its 10th straight year of uninterrupted growth. Many analysts believed that this trend would continue. However, COVID-19 turned everything upside down. Its rapid spread throughout the world dashed hopes for a continued economic rally, provoking a steep global recession.
The International Monetary Fund (IMF) estimated that the global economy had contracted by 4.4% in 2020. The introduction of restrictive measures in a number of countries to contain the spread of COVID-19 triggered a rise in unemployment, which could be comparable to Great Depression-era levels.
According to analysts, unemployment levels varied significantly in different parts of the globe. For example, the measures introduced by China to contain the outbreak turned out to be effective, allowing unemployment rates to remain low. Other states, such as Germany, adopted government-backed programmes which helped preserve jobs during the crisis.
However, the situation on the other side of the ocean was far from satisfactory. In Brazil and the United States, the uncontrolled spread of the novel virus and delayed government health and economic responses led to huge job losses. More than 22 million Americans lost their jobs in March and April 2020. As a result, the unemployment rate in the country skyrocketed to almost 15%.
Experts believe that the pandemic has dealt a devastating blow to global trade. In March and April last year, export volumes plunged to their lowest level in nearly a decade. In an effort to support the economies floored by the coronavirus crisis, governments and central banks around the world rolled out unprecedented fiscal and monetary stimulus. Of course, such measures prevented even larger damage to many economies but resulted in increased global sovereign debt. Moreover, the situation was exacerbated by close-to-zero interest rates.
"Debt today is sustainable and it will remain so for a few years because as long as economic activity and employment have not recovered momentum, central banks are unlikely to do anything with their interest rates. That allows governments to keep up the fiscal support in the form of retention schemes and support to firms," OECD Chief Economist Laurence Boone said.
Another adverse effect of economic stimulus packages introduced by most countries was a surge in consumer spending. Low interest rates encouraged citizens to buy big-ticket items such as cars or housing. At the same time, spending at restaurants as well as on travel and leisure plunged.
The banking sector showed an unexpected effect amid growing government spending. Experts recorded a pick-up in savings among households around the world as many consumers took advantage of government support payouts designed to mitigate the consequences of the COVID-19 pandemic.
In the second half of 2020, the savings rate declined but remained above the pre-crisis level. Economists believe this will help fuel an economic rebound in 2021 when the positive effect of COVID-19 vaccines becomes apparent.
