The world economic recovery is expected to gain strength starting in mid-2021 as Covid-19 vaccines become more widely available, says Fitch Ratings.
In its latest global economic outlook report, the rating agency revised its forecast for global GDP this year up from an expected 4.4% drop in its previous report to a 3.7% decline.
Fitch said the improved forecast for 2020 reflects the fact that GDP rebounded more quickly than expected in the third quarter.
“Strong and faster-than-expected recoveries in [Q3] illustrated the boost to activity from re-opening, even if a true ‘V’-shaped rebound remained elusive,” Fitch said.
Additionally, the effects of unprecedented fiscal and monetary support provided by governments is also now clearer, Fitch said.
“The global recovery path is proving bumpier than expected as the second wave of the virus prompts new restrictions, but the vaccine news is very positive for the economic outlook over the next two years,” said Brian Coulton, chief economist at Fitch Ratings, in a release.
“Massive policy easing has been aimed at providing the private sector with a ‘bridge’ to the other side of the health crisis. With the vaccine news providing a clearer end-point, it seems likely that further support will be extended in the near term,” added Coulton.
The rosier final reading for 2020 comes despite expectations for falling fourth quarter output in the U.K. and Europe amid renewed public health restrictions.
Nevertheless, the rating agency expects the global recovery to gain strength in the second half of next year “as coronavirus vaccines are rolled out and social distancing starts to unwind,” it said.
As a result, Fitch has revised up its 2021 global growth forecast up slightly to 5.3% (from 5.2%) due to expectations of stronger growth in the second half, “partly offset by weakness in the immediate months ahead.”
Fitch also revised its global growth forecast for 2022 up to 4.0% from 3.6%, “reflecting the anticipation of reduced social-distancing disruptions once immunization programmes have broadened.”
The 2022 forecasts also now factor in expected disbursements from an EU recovery fund that Fitch said is “likely to provide a sizeable boost to public investment,” pushing up its growth forecast for the EU in 2022 to 4.4% from 3.2%.
A key downside risk to these forecasts is problems rolling out vaccines, which “could result in repeated circuit-breaker restrictions and extensive social distancing through 2021, weighing heavily on GDP,” Fitch cautioned.