Global GDP will grow the most since 1980 this year amid vaccination and stimulus, Fitch says
- Fitch upgraded its global growth forecast for 2021 to 6.1% from 5.3% on Tuesday.
- The new estimate would make for the fastest worldwide expansion since at least 1980.
- US growth will reach 6.2% as vaccination and new stimulus boosts the nation's recovery, Fitch said.
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The world economy is set to thrive through 2021 as vaccinations and a new swath of fiscal support bring countries back to pre-pandemic norms, Fitch economists said.
The team led by Brian Coulton lifted their estimates for economic growth in a Tuesday note, joining several other firms in preparing for a strong recovery. Global gross domestic product is now expected to grow 6.1% through 2021, up from the previous estimate of 5.3%. The new forecast calls for the fastest rate of global growth since at least 1980 and follows a 3.4% decline in 2020.
Global GDP will grow 3.9% in 2022, the team added. That estimate is little changed from Fitch's December forecasts.
The US economy is expected to slightly outperform the rest of the world and grow 6.2% this year, the firm said. That's up from a previous estimate of 4.5% expansion. US GDP is now projected to reach its pre-pandemic highs by the end of the second quarter, three months earlier than Fitch last forecasted.
The $1.9 trillion stimulus measure signed by President Joe Biden last week drove the bulk of Fitch's revisions. The package is "much larger than expected" and, when joined with new relief plans in the EU and India, should contribute to the global recovery, the economists said.
Vaccine rollouts are also grounds for optimism, they added. The US is administering roughly 2.5 million vaccinations each day on average, according to Bloomberg data. That rate sets the country up to reach herd immunity in the next five months, although more optimistic estimates see herd immunity arriving as early as next month. Though the eurozone's distribution efforts have lagged, the region should see vaccination accelerate in the second quarter, Fitch said.
"It still looks reasonable to assume that the health crisis will ease by midyear, allowing social contact to start to recover. But immunisation delays or problems remain the key risk," the firm added.
Fitch's projections for US growth are fairly conservative compared to peers. Goldman Sachs lifted its own 2020 estimate to 7% on Monday, or 8% on a fourth-quarter-by-fourth-quarter basis.
Morgan Stanley holds an even more bullish outlook, estimating growth will reach 8.1% on a Q4-by-Q4 basis. It also said the US economy will return to pre-pandemic levels of output by the end of the current quarter.
Even the Federal Reserve's latest projections exceed Fitch's. The central bank boosted its 2021 growth estimate to 6.5% from 4.2% in a Wednesday release. The Fed also sees the unemployment rate falling to 4.5% by the end of the year, an improvement from the previous 5% estimate.
And risks still loom over Fitch's more modest forecast. Apart from the aforementioned vaccination setbacks, volatility in the Treasury market could lift borrowing costs sooner than expected and hinder the recovery. The eventual unwinding of government support programs could also slam unhealthy private-sector businesses and spark new bankruptcies, Fitch said.