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A summary of the impact and outlook for the world economy

A year on from the pandemic spreading to the western world and the recent publication of the IMF’s latest economic forecasts, we consider and summarise these forecasts and the key drivers on a global and regional basis.

Article updated: 12 April 2021 10:00am Author: Helal Miah

The Global Economy

Global economic output fell by 3.3% during 2020 as the pandemic halted normal everyday life in its path; a steeper decline than the Great Financial Crisis in 2008-09. The economic damage could have been far worse were it not for the interventions by governments and central banks. As wider portions of the global population become vaccinated and lockdowns are expected to come to an end, 2021 is unsurprisingly expected to show a big bounce in activity. Though the latest estimates for 2021 and 2022 are slightly rosier than prior estimates at 6% and 4.4% (real GDP) respectively.

The drivers for this are partly the inevitable arithmetics of any rise off of a trough but also the huge amounts of monetary and fiscal stimulus from central banks and governments. However, one of the key conclusions from the report is that recoveries will be divergent, reflecting the variations in disruption from the pandemic and policy support.

Certain sectors have been affected more than others and this reflected upon economies that are concentrated on them. For example, countries heavily reliant on travel and tourism suffered disproportionately and this will likely be an enduring feature as this sector would be most prone should the pandemic endure. Those reliant on commodity exports and those with limited policy response including the ability to respond with adequate healthcare have (and will) continue to take a hit.

Amongst the populations, the young, women, the lowly educated and those in informal employment have generally seen the biggest hit to their income and these groups are likely to continue to face challenges.

Going forward, global is expected to moderate to 3.3% over the medium term which reflects the damage to supply chains and forces that predate the pandemic, including age-related slower growth in the labour force in advanced economies.

United Kingdom

The United Kingdom has fared worse than most, not only because of the number of deaths but also economically given the countries large services and leisure sector, it was also weak going into the crisis given the uncertainties around Brexit. GDP for 2020 fell a whopping 9.9% (only Spain suffered more amongst developed nations). However an advanced vaccination programme along with fiscal and monetary support should see 2021 GDP bounce by 5.3% and following into 2022 by 5.1%. The UK economy is therefore not expected to reach pre-pandemic levels of activity until early 2023.

Euro Area

There was a wide dispersion of the impact from the pandemic on various EU nations which collectively fell by 6.6%. Germany, the manufacturing and industrial powerhouse saw 2020 GDP fall by 4.9% while the more fragile travel and tourism dependent nations such as Spain and Italy fell by 11% and 8.9% respectively. Real growth for the region for 2021 and 2022 is expected to be around 4.4% and 3.8%. The ECB has boosted monetary stimulus through further bond purchases with the aim of keeping bond yields down, the slow vaccination programme and increased likelihood of further waves will keep the bank’s accommodative stance much longer than others.

United States

The US economy was amongst the strongest when the pandemic hit, nonetheless, activity dropped by 3.5% during 2020. With restrictions easing, the Federal Reserve adopting a flexible framework and the Biden administration’s promise of huge spending plans, the US is set to the lead the global economy out of this crisis, expecting to rebound by 6.4% in 2021 followed up by a further 3.5% in 2022.

China & Developing Asia

China managed to wade through the crisis reasonably well as it became the only major economy to expand during 2020 while the region as a whole only fell by around 1%. Prior experiences of pandemics and quick response this time around places the region very well for a big bounce in 2021 of 8.6% and 2022 at 6.0%.

Asset Allocation

The crisis has done little to change investors minds as to which asset class to place their capital. Prior to the crisis and with low interest rates and inflation, real assets and equities have been the most popular choice and this is unlikely to change. Some may be concerned that inflation will start rising due to all the stimulus, but most of the central banks take the view that this may just be transitory as a full year of the impact from the pandemic passes by.

However, more investors may want to consider their geographic and sector split amongst their equity investments. I and many other investors see very good value in UK and European equities where the price to earnings ratio is not stretched and investors have access to good income yields. US shares have done exceptionally well, trading at new all-time highs, but many see a rotation about to come with the beaten-up sectors bouncing back as life returns to some form of normality while those that have benefitted see their temporary drivers fade away such as the technology sector. Meanwhile the emerging markets seem well placed over the longer term through structural drivers such as rising populations and income levels but expected to face much volatility in the short term depending to each countries sectoral reliance.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment. 

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