In this month’s IHS Markit World Flash, Sara Johnson, executive director, global economics, IHS Markit, offered insight into IHS’ global GDP growth projections and expectations for inflation. This material is available exclusively to Electrical Marketing subscribers as part of a $99 annual subscription.
IHS expects global real GDP to advance +5.1% in 2021, with global output hitting a new peak by Q3, and global consumer price inflation projected to pick up to +2.8% in 2021. Global economic growth will strengthen in the second quarter as vaccinations accelerate, activity restrictions are eased and consumer spending revives, lifting global output to a new peak by the third quarter of 2021. Businesses will gain confidence in the recovery’s durability and move forward with new investments. World real GDP is projected to advance +5.1% in 2021 and +4.3% in 2022 before settling to a more sustainable 3.1% growth pace in 2023–25.
The global economy will achieve solid growth in 2021 and 2022 as the COVID-19 pandemic subsides. Price inflation will pick up in the months ahead, but the pace is likely to be moderate rather than high as supply conditions improve.
The United States and mainland China are leading the global expansion. US real GDP is projected to increase +5.7% in 2021 and +4.1% in 2022, as the lift from the new $1.9-trillion fiscal stimulus package is partially offset by headwinds from rising long-term interest rates. Mainland China’s economy is expected to grow a robust +7.8% in 2021 as the recovery in consumer demand gains traction with effective COVID-19 virus containment. Growth will slow to +5.7% in 2022, resuming a downward trend in response to deleveraging and diminishing productivity gains.
As the global economy recovers, inflationary pressures are building. In several markets, strengthening demand is colliding with pandemic-constrained supply, driving up prices. The IHS Markit Materials Price Index has surged +44% since early Nov. 2020, standing +75% above its year-earlier level during the week ended March 12. Price increases have been broadly based, encompassing metals, lumber, energy, chemicals, fibers and semiconductors. As these price increases move downstream, prices of finished goods and services are accelerating. Led by accelerations in the United States and other advanced economies, global consumer price inflation is projected to pick up from +2.1% in 2020 to +2.8% in 2021.
Policy stimulus and the resilience of consumer demand as economies reopen will be primary forces affecting inflation. Household savings surged in 2020 in response to government stimulus payments and COVID-19 containment measures. Accumulated “excess” savings during the pandemic are estimated at over $3 trillion globally and could drive a faster resurgence in consumer demand than we currently anticipate. Monetary policies are expected to remain highly accommodative, resulting in ample credit availability.
While inflation is clearly an upside risk to the forecast, a return to the double-digit inflation rates seen in the mid-1970s and early 1980s is unlikely. Many of the current supply disruptions are temporary. Indeed, as supply conditions improve, IHS Markit analysts expect a significant correction in industrial materials prices in the remainder of 2021.
Outside of North America, gaps between potential and actual output remain large in many economies. It will be several years before the global unemployment rate — estimated at 8.1% in 2021 — returns to its 2018 cyclical low of 6.5%. Since the 1980s, inflation targeting has become conventional policy for central banks in developing, emerging, and advanced countries. Policy vigilance has kept global inflation in single digits during the past three decades and anchored inflation expectations around 2% in the advanced countries. Meanwhile, cost-of-living escalators that fueled wage-price spirals in the past are much less prevalent. International price competition facilitated by the rise of global trade has also restrained inflation.
— Sara Johnson, executive director, Global Economics, IHS Markit