The weak global economic climate is slated to extend into the second quarter of 2021 as countries continue to impose social distancing measures to curb the spread of coronavirus infections.

This has prompted Ben May, Director of Oxford Economics’ Global Macro Research division to revise his forecast for 2021 global GDP growth downwards to 5.4%, from a previous 5.8% estimate.

Calling his previous estimate an “overly-optimistic assumption”, May says the number was based on expectations of a relaxation in some social distancing measures in early 2021 due to medical developments such as a vaccine for the coronavirus.

Even so, he argues that the “average pace of growth in 2021 is [likely] to match that seen in the early stages of recovery after the 2008/2009 Global Financial Crisis”.

Still, some countries will have a more uphill task than others. May outlines four aspects which affect this: an especially sharp GDP contraction in 1H2020, difficulty in containing the virus, a high exposure to hard-hit sectors and constraints in fiscal and/or monetary loosening.

Breaking this down, he notes that countries – such as the UK and South Africa – which saw a sharp plummet in their 1H2020 GDP due to the strict and long lockdowns, may actually have a harder time catching up and reviving their ailing sectors.

Similarly, having difficulties containing the virus translates to a slower reversal of lockdown restrictions and greater voluntary social distancing, says May. This phenomenon is preventing countries such as the UK, India and Argentina from reverting to normality.

Meanwhile, countries such as Thailand which have a high exposure to the hard-hit sectors of tourism and energy can possibly experience a slowdown in the speed at which their growth picks up. This is as the contributions to growth for the other sectors may not be enough to offset the overall slowdown, observes May. 

Lastly, he points to constraints in the loosening of fiscal or monetary policy due to “a lack of policy space or concerns that it would induce a market sell-off that would exacerbate economic weakness”.

“When comparing our outlook for 2021 with those of other forecasters it’s important to factor in differences of view over the size of the 2020 slump,” notes May. “A bigger contraction this year is likely to reflexively boost the headline growth figure for 2021”.

To this end, he is maintaining his global GDP growth forecast for this year at -4.4% as economies lose momentum from a post-lockdown bounce.

“While we still expect GDP growth in Q4 to be robust by historical standards, we have nonetheless revised down 4Q2020 growth to take this development into account,” May stresses.